How To Survive The Debt Ceiling

Moneybox
A blog about business and economics.
Dec. 6 2012 4:15 PM

How To Survive The Debt Ceiling

The president is attempting to draw a line in the sand over the debt ceiling, saying he won't negotiate over it under any circumstances. I think that's the right call. Once it becomes a bargaining chip it becomes a dangerous weapon. Obama needs to re-routinize the lifting of the debt ceiling by refusing to compromise and scoring a total victory. Greg Sargent reports that the Business Roundtable will be siding with Obama over this, which helps bolster his position somewhat. But Josh Marshall warns that holding firm "may be easier said than done."

I think it's actually pretty easy. People are a bit confused by the 2011 debt ceiling precedent because in that case Obama wanted Republicans to "force" him to make concessions. For a mix of substantive and political reasons, the White House wanted to obtain a grand bargain on long-term fiscal policy and thought the debt ceiling could be a good forcing mechanism that would make Republicans agree to raise taxes and then in exchange he and other moderate Democrats would have the political cover to trim Medicare and/or Social Security. Then it all blew up in their faces.

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But resetting into a no concessions mindset, the White House has a lot of tools. Not only can he argue that the 14th Amendment obviates the debt ceiling (which I would if I were him) or have the Mint create a couple $1 trillion platinum coins (which is weird, but on a sounder legal basis) he can use his control over the executive branch to make the lapse of borrowing authority as painful to Republicans as possible. The key point is that even without the authority to borrow money, the federal government still has a lot of tax revenue coming in. You use that money to make sure bond holders get paid in full and there's no default. You use that money to make sure Social Security checks keep paying out. You keep paying federal workers' wages. But contractors, state governments, and health care providers just get IOU notes signed from the president telling them to keep doing their jobs and promising full payment—as required by law—as soon as congress relents. And you say in advance that this is the plan. Congress can either surrender right away and spare Medicare providers and defense contractors some inconvenience, or else they can hold out for a week or two until every hospital administrator in America is banging on every congressman's office demanding surrender.

The key point is that the funds for everything have already been appropriated. It's the law of the land that those bills will be paid. Congressional inaction can't repeal Medicare or change the fact that guys with standing contracts to deliver bullets to the Pentagon are entitled to money in exchange for their munitions. All congress is doing here is creating a mechanical roadblock to the transfer of funds from the party legally obligated to pay to the parties legally entitled to be paid. You send them IOUs, tell them to keep doing their jobs, and tell them that if they want money they should ask congress.

Republican members are sensitive to the concerns of these folks who want—and are entitled to—their money, and everyone in the press knows that lifting the ceiling is the right thing to do. Obama made this hard last year as part of a failed tactical gambit, but if he wants to play hardball he has enormous advantages.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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