Congress Will Blink on the Debt Ceiling—Here's Why

Eric Posner weighs in.
Sept. 30 2013 1:51 PM

On the Debt Ceiling, at Least, Congress Will Blink

Here's why.

U.S. President Barack Obama
President Obama can't stop a government shutdown, but he can raise the debt ceiling with a wave of his hand.

Photo by Jason Reed/Reuters

President Obama shouldn’t let the United States default on the debt, even if this means defying Congress and disregarding the debt limit. However, he shouldn’t, and can’t, stop the government shutdown.

Barring a compromise with House Republicans, the government closes Tuesday. The showdown over the debt ceiling will come in mid-October. The implications of the threats, as well as the timing, are different. If the debt ceiling is not raised, and the executive branch stops borrowing, the government will need to cut spending by about 15 to 20 percent—or almost 40 percent of spending on everything (yes, Medicare and defense) other than the interest on the debt. The decision about what to cut appears to be largely, but not entirely, up to President Obama.

Whatever he does, the impact will be large and immediate. If he pays the debt interest while cutting expenditures, hundreds of billions of dollars will vanish from the American economy, sending thousands out of work and depriving many others of pension checks, medical insurance, and basic services. If he stops interest payments, the United States will default. This will not only raise interest payments—costing taxpayers hundreds of billions of dollars—but could spark a financial panic like the meltdown of 2008. Treasuries (as well as other government securities) are used in the repo market, which funds the major financial institutions. If that $5 trillion-to-$10 trillion market collapsed, it would take the banking system with it.


By contrast, a government shutdown—actually only a partial government shutdown, since essential services will continue—would not cause great hardship in the short term (although the stopping and restarting of programs would waste money). Most major programs, like Social Security and Medicare, are paid out of permanent appropriations, and so would not be affected by the failure to pass a bill by Tuesday. Aside from the closing of national parks and museums, much of the impact would be invisible to the public. Only as time passed would people realize that programs that they support had been suspended, and that unpaid government workers were putting a drag on the economy.

Because the crackup from failing to raise the debt ceiling would be so huge, the president could afford to defy congressional Republicans. No one—not even a hard-core Tea Partier—wants the government to default on the debt, or even to stop cutting Medicare checks. President Obama can therefore calm financial markets by announcing that he will unilaterally raise the debt ceiling. Tea Partiers can, of course, condemn him for pushing past the limit on executive power, possibly thinking that they have maneuvered him into a damned-if-you-do-damned-if-you-don’t position. But they are wrong if they think that he’ll be damned if he does.

As I have argued before, the president has the constitutional authority to lift the debt ceiling on his own. If Congress won’t vote to do this, then it will have commanded him to spend vast sums on valued programs, but not given him enough money to do so. Where the president is given conflicting commands, he can use his discretion to resolve the conflict, bolstered here by his inherent administrative powers and his emergency powers to protect the nation, both sanctioned by constitutional tradition. Since a default on public debt would result in an economic catastrophe, he can borrow with or without Congress behind him.

And if this comes to pass, Congress will have little recourse. If lawmakers complain that the president failed to let the government default, they’ll get little sympathy from the public. Conceivably, the House could launch impeachment proceedings against the president, claiming that he has violated the law. But impeachment would be fruitless; a conviction requires a two-thirds majority in the Senate, which the Democrats control. And while an impeachment would further bog down the presidency, it would be politically risky for Republicans as well.

If Republicans in the House tried to stop the president by going to court, they would probably lose there, too. The courts would refuse to intervene under the political question doctrine, which directs courts to stay out of disputes between the legislature and the executive. Most private individuals would lack standing to bring a challenge because they would not be able to show how increased borrowing specifically injured them. Maybe people who own credit-default swaps that pay off in the case of default would claim that raising the debt ceiling harmed them, but courts would probably dodge such claims under the political question doctrine as well.

Nor would courts recognize challenges to expenditures (like salaries for employees) financed by borrowing in excess of the debt limit. It would be impossible to distinguish between expenditures financed by debt above the limit, and expenditures financed by tax receipts—it’s all fungible. So judges would have to declare all government expenditures invalid (including their own salaries) if they declared any invalid. This is not going to happen.

The story with the partial government shutdown is different. The public does not fear it that much because they know essential services will continue. That means significant political risk for the president if he goes against Congress. His constitutional arguments would be weaker as well. We know from previous shutdowns that they do not create emergencies—indeed, the law explicitly permits emergency spending—so the president’s emergency powers do not come into play. And it is well established that the president cannot spend unappropriated money. A law called the Antideficiency Act even subjects agency personnel to criminal liability if they intentionally spend money that Congress has not authorized.

Law and politics line up here: President Obama would do well to accept the partial shutdown of the government tomorrow, and then compromise with Congress before the costs of a shutdown mount too high. But if financial markets get spooked as the debt ceiling deadline looms, he should make it clear he’ll raise the debt ceiling on his own. He has the Constitution and the public behind him. In the bigger showdown, he can count on Congress to blink.



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