The Debt Ceiling … Again

I think I’ve made my contempt for Obamacare pretty clear. I’ve pointed out its deep flaws, its underestimated expenses, its dubious Constitutionality. In my more cynical moments, I wonder if its flaws aren’t the point: to make the system so much worse that people will demand socialized medicine. We’re already seeing employers shed insurance and rates go up. It’s been hitting me personally as my employer has had to raise insurance rates because of increasing costs.

But you know what? As much as I hate Obamacare, it’s not worth crashing the debt ceiling over.

As you know, we reached out statutory debt limit a few months ago. The Treasury Department has been using various means to avoid exceeding it, but those means will run out within a month. And a significant fraction of the Republican caucus is already contemplating a debt ceiling crash, refusing to raise the debt ceiling unless Obamacare is repealed or defunded.

Let’s take those demands on their own terms. Repeal is not going to happen with a Democratic Senate and White House (and might not happen even if they were in GOP hands). Defunding it sounds good, but as Tom Coburn has reminded us (PDF), this will not actually stop the law from being implemented. The statutory parts will be in place. All that will be denied are funding for insurance exchanges and subsidies. Let me clarify that: people and employers will still be forced to buy insurance, but the mechanisms designed to ease the financial burden will be denied. I don’t see how that’s better.

So this tactic will be ineffective at best and bad at worse. And in return, we would get … the first ever default on American debt. The negative impact of that on the American economy is not imaginary. Look what happened last time:

High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later. (Disclosure: We have a consulting relationship with Gallup.)

Growth in nonfarm payrolls decelerated to an average 88,000 a month during the three months of the debt-ceiling impasse, compared with an average of 176,000 in the first five months of 2011 (see chart). Payroll growth subsequently recovered and has averaged 187,000 jobs a month since. Despite the rebound in job growth, employment is likely still below where it would otherwise have been.

There are also more visible permanent scars. The sense that the U.S. political system could no longer credibly commit to paying its debts led the credit-rating company Standard & Poor’s to remove the U.S. government from its list of risk-free borrowers with gold-standard AAA ratings. Just as a poor credit score raises the interest rate you pay in the long run, so a worse credit rating will probably raise the interest rate on our national debt.

The debt ceiling fight caused 300,000 fewer people to find work that summer, even is we assume no longer-term impact. Real progress was made on the debt in the next two years, but if a debt ceiling crash raises interest rates even 1%, that will mean a spike in federal interest payment that will wipe out almost all of those gains. Is that worth having what amounts to a national temper tantrum over Obamacare?

But there is something more dangerous at play here. When the Republicans threatened to hit the debt ceiling in 2011; when Obama voted against it years earlier; there was at least a strain of thought involved. We couldn’t raise the debt ceiling, the crashers told us, because we were going to default anyway. Our debt was out of control. Would you extend more credit to someone who was already wildly overspending? We couldn’t possibly raise the debt ceiling until our fiscal path was stable.

But this isn’t a fight over debt. If it were, we’d be talking about tax reform or entitlements. This is threatening to crash the economy if the Republicans don’t get their way. If we allow this precedent to be set, where does it stop? Judicial nominations? Union regulation? Are we going to threaten the debt ceiling when Republicans don’t like the table arrangements at White House banquet?

This isn’t a negotiation. This isn’t a tactic. This isn’t politics. This is a hostage situation. The GOP is holding a gun to the country’s head and threatening to blow the brains out of our economy if they don’t get what they want. That I want the same thing — the repeal of Obamacare — is irrelevant. You don’t deal with a termite infestation by burning the house down.

Pause a moment. Put aside your feelings about Obama and Obamacare. Do you want this precedent set? Do you want the Democrats to use it against President Rubio? Do you want them to threaten to hit the debt ceiling if he doesn’t fund abortions? Or pass universal daycare? Or raise taxes on the rich?

This bullshit must stop. It’s gone too far. This isn’t a game; this is our country. It’s bad enough that we’re staring down the barrel of a politically-disastrous government shutdown. But a debt ceiling crash? As much as Obamacare is going to hurt us, it’s peanuts compared to that. Millions of us are still unemployed; others in precarious positions. For a bunch of people with guaranteed jobs to promise to make things worse for no discernible gain (other than making talk-radio yammerheads happy) is the most breath-takingly irresponsible unconservative thing I can imagine. And, unfortunately, it’s about what I’ve come to expect.

Comments are closed.

  1. salinger

    Do you want this precedent set? Do you want the Democrats to use it against President Rubio? Do you want them to threaten to hit the debt ceiling if he doesn’t fund abortions? Or pass universal daycare? Or raise taxes on the rich?

    There it is in a nutshell.

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  2. Mook

    But this isn’t a fight over debt. If it were, we’d be talking about tax reform or entitlements. This is threatening to crash the economy if the Republicans don’t get their way.

    Is it Hal, or is this exactly like the scaremongering we were force fed in order to justify the 2008/2009 financial bailouts? And didn’t we hear the same doomsday predictions about what would happen if the sequester went into effect? Well, the sequester happened, and it was a big yawn.

    I love how you buy into your buttboy Ezra Klein’s hyperbole with the “if the Republicans don’t get their way” bullshit, as if the Republicans are in the wrong here. Obamacare is a fucking train wreck. Period. Obama is driving the economy off the rails with his uncontrolled deficit spending. Period. Something, anything needs to be done to stop it. Those that attempt to stop it are on the side of angels.. not, as you have asserted, a bunch of spoiled brats having a tantrum simply because they didn’t get their way. If govt. has a “shutdown” let’s expose Obama’s spending priorities. We can see him continue to fund welfare full steam while slashing social security and medicare.

    You have swallowed the big government scare tactics hook, line and sinker, complete with repetition of their talking points.

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  3. TxAg94

    Just an alternate view: Is it possible that Obama and the left want this fight more than anyone on the right? As quickly as the scandals have piled up in the last year they are despearte for any and every distraction. If one give sthem a chance to not only distract but be the hero, even better. Just saying.

    On a separate point about the consumer confidence reaction to the issue (the Gallup poll in particular), do we really believe than more than a statistically insignificant fraction of everyday Americans understands the issue at all? I don’t believe that. I think the reactions are only tied which side of the aisle they already identify with. They know how they are supposed to react in that light, but not with respect to the actual issue.

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  4. AlexInCT

    Just an alternate view: Is it possible that Obama and the left want this fight more than anyone on the right?

    This is my vote. Remember that the only thing these people do well is campaign and win elections. They have no clue how to govern, unless you think that if they were allowed to do things the way China and the old USSR did things is going to make a difference, run an economy up instead of into the ground, and foreign policy is a joke to them. This fight is their battle space preparation for the 2014 elections. They can not win on the merits or their track record, so they are going to baffle voters with bullshit. I bet you Obama wouldn’t lose a second of sleep if he destroyed the economy to keep the status quo when it comes to the current political tableau. These people are opportunists of the worst kinds, and they really don’t give a flying fuck about who gets screwed as long as they keep power. Besides, as long as they can blame the other side, they are OK with either the rate hike crashing the economy or the massive debt from frivolous overspending doing the same.

    But you all are welcome to pretend they do care, and they have noble reasons to want to fight this fight.

    Heh. Me, I wouldn’t mind the Feds crashing the whole thing at this time. It is clear that without real pain we will never get rid of our credentialed masters anyway. And they can not keep doing what they are doing without it crashing. The pain is going to be less now than if we wait another 2-5 years.

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  5. Mississippi Yankee

    You don’t deal with a termite infestation by burning the house down.

    Actually Hal if the infestation is severe enough that is exactly what you do. And then you rebuild with safe-guards in place to insure that it never happens again. Heat is also the prescribed cure for cockroach infestations too.

    I suggest starting with a good foundation, say the U S Constitution, as written, and go from there.

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  6. Hal_10000 *

    What “real progress” was made on the national debt? You’re kidding right?

    FY 2009: 3.52 trillion spending, 1.41 trillion debt
    FY 2010: 3.46 trillion spending, 1.29 trillion debt
    FY 2011: 3.60 trillion spending, 1.30 trillion debt
    FY 2012: 3.54 trillion spending, 1.09 trillion debt
    FY 2013: 3.45 trillion spending, 0.64 trillion debt

    That’s flat spending over the last five years and 50% deficit reduction in the last two. Or are we going to back to the claim of “the budget figure are accurate when they look bad and inaccurate when they look good” thing again?

    If govt. has a “shutdown” let’s expose Obama’s spending priorities. We can see him continue to fund welfare full steam while slashing social security and medicare.

    What color is the sky in your world? What will mostly happen is military cuts, law enforcement cuts and cuts to interest payments that put us in default.

    And for all of you saying, “Ha! This will get Obama!”:

    1) That’s what they said in 1996.

    2) Thanks for putting the country last.

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  7. Hal_10000 *

    Those that attempt to stop it are on the side of angels.. not, as you have asserted, a bunch of spoiled brats having a tantrum simply because they didn’t get their way

    When you are contemplating a step that will hurt the economy, throw hundreds of thousands if not millions out of work and increase the deficit in aide of something that will almost certainly not happen (and at best give huge bills to millions Americans), I don’t think you’re on the side of the angels.

    And the “it will stop Obama” stuff will look really funny when the Democrats win back the house in 2014 after the public, correctly, blames the GOP for hitting the debt ceiling.

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  8. CM

    When you are contemplating a step that will hurt the economy, throw hundreds of thousands if not millions out of work and increase the deficit in aide of something that will almost certainly not happen (and at best give huge bills to millions Americans), I don’t think you’re on the side of the angels.

    When ‘burning the house down’ trumps the real-world effects (of doing just that) you’re in extremist-ideology territory. When putting theory into practice is all that matters you know it’s time to up the meds.

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  9. Hal_10000 *

    I was thinking about this some more last night. My brother asked me: “OK, so what would YOU do to stop Obamacare?” And I thought about it and came up with the following:

    1) I would try to find ways to blunt the impact that will pass the Senate and the White House. A delay or elimination of the employer mandate, for example, which Obama might be open to.

    2) I would focus most of my energy on competent governance: more work on the budget, regulatory overhaul and tax reform (Mike Lee just laid out a good start) to counter the economic damage of Obamacare. I would also come up with own healthcare reform plan and start flogging it as an alternative.

    3) Based on that record, try to take back the Senate in 2014 and the White house in 2016. My campaign would be that we protected you from the worst of Obamacare. And if you give us back the government, we will get rid of the rest.

    4) THEN try to repeal Obamacare in favor of a real plan to overhaul our health care system.

    This might be familiar because it is basically how we dealt with Clinton.

    The problem is that this involves work and its kind of boring. It doesn’t pull in the campaign contributions like “we will stop Obamacare NOW!” does. So I think that most of this is kabuki. The GOP faction that wants to shut down or hit the debt ceiling gets to rant and rave and get unwarranted praise for their “conservatism”. They get to raise money from tea partiers who think this is actually going to work. And in the end, nothing gets done. Because doing things take time, patience and work.

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  10. Mook

    That’s flat spending over the last five years and 50% deficit reduction in the last two

    Paul Krugman, is that you? All the leftwing rags seem to be suddenly in synch with their new meme that the ‘budget deficits don’t matter’ and Hal dutifully parrots their talking points. After all, we have a printing press!

    “Flat spending” from historical all time high spending levels with first time ever $1 trillion + annual deficits (not counting unfunded liability increases). Spending during Obama’s first year increased 16% from already unacceptable historically high spending from the financial bailouts. US debt is now 73% of GDP , and that doesn’t count unfunded “off book” liabilities for which the estimates range from $55 trillion to $222 trillion. And also doesn’t account for the fact that the interest rates are at historic lows, and an increase in interest rates to their historical norms would further increase the debt. Those unfunded liabilities are real promised debts.

    Crushing unsustainable catastrophic levels of debt.. We have mild slowdown in the growth in debt (it’s still increasing and at a historical high unsustainable level) due to the military-heavy cuts in the sequester and the withdrawal of troops from Iraq.

    THAT is the color of sky in my world. Glad to see you’re firmly in the camp of “we can’t cut out of control deficit spending or we’ll CRASH the economy”.

    Thanks for putting the country last.

    Of course.. if one opposes the out of control deficit spending and is actively trying to defund the monstrosity of Obamacare, that’s “putting the country last”, just like the leftwing talking heads tell you to think. No doubt you see yourself as some noble patriotic truthteller here to set us rubes straight…

    And btw Hal, if there’s a shutdown, it’s not because Congress didn’t get their way, it’s because the Obama administration refuses to cut spending. Glad to see that you’re so quick to blame it ALL 100% on Republicans without the least bit of acknowledgement of Obama’s and the Democrats’ role in this..

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  11. Hal_10000 *

    THAT is the color of sky in my world. Glad to see you’re firmly in the camp of “we can’t cut out of control deficit spending or we’ll CRASH the economy”.

    Don’t put words in my mouth. Here is what I said:

    Real progress was made on the debt in the next two years, but if a debt ceiling crash raises interest rates even 1%, that will mean a spike in federal interest payment that will wipe out almost all of those gains

    Did I say we should ignore the deficit? Did I say we should stop? Did I not say that entitlement reform was the next step? Do you have any idea how sick I am of that “oh you disagree with me, so you’re a big fat liberal Krugman” bullshit?

    It’s not me who’s ignoring the deficit situation, it’s you. You are supporting a step that will make our deficit situation far far worse. Our debt is now 73% of our GDP. And what happens when the interest rates on 73% of our GDP spike upward? The impact will be far far greater than anything in Obamacare. One percentage point and all the progress of the last two years is lost. (You do know that debt interest is one of the biggest drivers of long-term deficits, right?)

    Moreover, you keep missing the point: this isn’t a fight about the debt. The Republicans aren’t holding out for spending cuts. They’re not holding for entitlement reform. In fact, they haven’t proposed either spending cuts or entitlement reform and have refused to consider the President’s proposal of chained CPI. I’m not going to pretend their kabuki has anything to do with debt. No person who is in any way serious about the debt would be contemplating breaking the debt ceiling.

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  12. Mook

    Do you have any idea how sick I am of that “oh you disagree with me, so you’re a big fat liberal Krugman” bullshit?

    Yet you continue to minimize and excuse the catastrophic debt levels (in Krugman-like fashion?) by highlighting that spending levels have been “flat” without zero acknowledgement that those “flat” spending years are at historic nose bleed levels that are unsustainable. And in case we didn’t get the point, you further characterize those insane levels of deficits as “progress”. That’s right, you call that progress. I call it delusional.

    You are supporting a step that will make our deficit situation far far worse.

    Bullshit. How does attempting to defund Obamacare make it “far far worse”? You have again EARNED your comparison with Krugman with your words and the positions you take.

    The impact will be far far greater than anything in Obamacare

    Completely overlooking the massive deficits and compounded interest that Obamacare is forecasted to create which ADD to the interest-laden debt.

    Interest rates are held artificially low through federal intervention.. no different than a temporary sugar high. The pressure is building and it will eventually blow. Although govt. has temporarily benefited from low interest rates to minimize the effects of its skyrocketing deficits, that has come at a multi-trillion dollar$$ cost to savers who have been punished by artificially low interest rates on their CD’s and savings accounts. Savers, particularly seniors, who used to depend on 7% CD interest have suffered for years under 1%. That is a real cost to the economy as well.

    The Republicans aren’t holding out for spending cuts. They’re not holding for entitlement reform

    They are attempting to defund the Obamacare entitlement. And you want to know the color of the sky in MY world?

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  13. Hal_10000 *

    I have never minimized or excused high spending or debt levels. I have talked nonstop about entitlement reform which compromise the vast majority of the budget while Republicans have foamed at the mouth about NPR which constitutes a rounding error. And the flat spending we have had over the last five years is the first time the budget has been flat since one year in the 1960’s. You hold spending flat, the budget will be down to 18% of GDP by 2019, which is the historic average and meets anyone’s definition of sustainable. And … again I keep harping on this point … this is the best you can get out of this President and Congress. We don’t live in your pink-sky-colored world where spending can just be slashed 40%.

    Defunding Obamacare is not going to happen, not with the Senate and White House. The Republicans know this. Yet they are choosing this hill to fight on. Why? Because it raises money for them, because they sound tough and because it keeps them from having to make tougher decisions (they already trying to undo the 2014 sequester on defense spending).

    Apart from that, this is not government works or has ever worked or ever will work. The way government works when you have a divided government — remember that Obama represents half the voters — is compromise. We get something we want; they get something they want. This is not a proposal for compromise (e.g., one year delay in Obamcare in exchange for other budget considerations). This is the Republicans holding a gun to the country’s head and threatening to shoot.

    Compromise has held spending at a flat level and cut the deficit in half. Holding our breaths until we turn purple hasn’t gotten us anywhere. I will take that real progress — meager thought it is — over the pseudo progress that exists in Mookland.

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  14. Mook

    When you are contemplating a step that will hurt the economy, throw hundreds of thousands if not millions out of work and increase the deficit in aide of something that will almost certainly not happen (and at best give huge bills to millions Americans), I don’t think you’re on the side of the angels.

    Defunding Obamacare is not going to happen, not with the Senate and White House.

    So while you say that you acknowledge that Obama’s insanely massive deficits and Obamacare are problems, you claim that those who are now trying to reel in some of this deficit spending and the tyranny of Obamacare are the REAL problem because a) they’re only doing it as a political stunt – impugning motives and b) their actions in doing the right thing could possibly create a potential disruption to the status quo… a status quo which is deficit spending to an extreme and an intrusive tyrannical Obamacare legislation being foisted on us. In other words, they’re not going about it the “right way”, although in theory, you oppose Obamacare and the entitlement nation welfare state..

    It didn’t help that you used the scaremongering language of the big govt. types in making your point. The sky is falling if Republicans try to defund Obamacare!! It’s all the Republicans’ fault!!

    In fact, your post offered zero acknowledgement of Obama’s and the Democrats’ role in the problem. Obama says he will veto any bill which would defund Obamacare, which means HE is vowing to shut down govt. if he doesn’t get his way.

    I recall a Senator Obama voting against raising the debt ceiling when Bush was in office with deficits and debt a fraction of what we have now. Was he irresponsibly trying to “crash the economy” by doing so?

    Apart from that, this is not government works or has ever worked or ever will work. The way government works when you have a divided government — remember that Obama represents half the voters — is compromise. We get something we want; they get something they want.

    Except that for the 1st time in US history, major legislation was passed, and passed illegitimately, without the vote of even 1 Congressman or Senator in the opposition party. SS, Medicare, etc. ALL had some degree of bipartisan support. It is also the 1st time in history to my knowledge that a new entitlement would have guaranteed funding for 10 years. And a majority of Americans in both parties don’t want Obamacare if the polls are to be believed. It was rammed down our throats in such a way that the old rules of compromise and give-and-take do not apply here in opposing it and attempting to repeal it because none of those rules, courtesies, and customs were adhered to in the passage of Obamacare. It was a tyrannical move that needs to be fought by any and all means necessary.

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  15. Hal_10000 *

    In fact, your post offered zero acknowledgement of Obama’s and the Democrats’ role in the problem. Obama says he will veto any bill which would defund Obamacare, which means HE is vowing to shut down govt. if he doesn’t get his way.

    If I shoot the hostage, it’s your fault!

    Again, do you want to set the precedent? Do you want the Democrats to send President Rubio a bill that will only raise the debt ceiling if he repeals the Hyde Amendment?

    As bad as Obamacare is, you are massively overstating the case. This isn’t tyranny. This isn’t communism. This is bad law. Massachusetts has had a version of this for years and they’re not shooting people down in the streets. Get a fucking grip.

    As for insanely massive deficits, let’s not open that debate again. Under Obama, we have had the smallest spending growth since Truman, even including the stimulus. The deficit was a bipartisan mess. Obama’s stimulus contributed. So did the tax cuts. So did Bush and the Republicans massively expanding food stamp eligibility in 2006. And the biggest factors were the economy (bipartisan shit storm) and entitlements, which neither party has addressed.

    Except that for the 1st time in US history, major legislation was passed, and passed illegitimately, without the vote of even 1 Congressman or Senator in the opposition party.

    a) irrelevant. It passed. It’s the law.

    b) this lack of bipartisan support doesn’t seem to matter to you when it’s Republicans doing it. For example, when the Republicans passed the cuts in food stamps with a single Democratic vote, I don’t remember you screaming, “It got no support from the Democrats! Oh, woe!” So in essence, you are saying that it’s fine for Republicans to steamroll Democrats. When Democrats steamroll Republicans, it’s dirty tricks.

    c) factually incorrect. Clinton’s 1993 budget passed without any Republican support. Historically, the Emancipation Act passed without Democrat support as did the 13th Amendment (you may have seen a movie about this). That’s just what I remember off the top of my head. I’m sure there are many other examples.

    And remember, Bush’s Medicare Part D only passed with a handful of Democratic votes and that after Republicans held the voting open for hours while Hastert twisted arms.

    And a majority of Americans in both parties don’t want Obamacare if the polls are to be believed.

    Irrelevant, since we don’t live in a democracy. And the Republican 2012 campaign, centered on repealing Obamacare, failed to capture the Senate, failed to capture the White house and only got 50% of the votes for House (getting a majority because Democratic voters are geographically concentrated).

    As I said above, if the Republicans want to really repeal Obamacare, maybe they should try winning some elections.

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  16. CM

    Irrelevant, since we don’t live in a democracy.

    Also, remember that some say they don’t support Obamacare in those polls because they think it doesn’t go far enough.

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  17. Hal_10000 *

    When you break down the polls, CM, as I did in last week’s post debunking the “lies” about Obamacare, you find about 1/3 want it repealed, 1/3 want it expanded or left as is, 1/3 want it improved (I’m in between; wanting the edges blunted now with replacement if the GOP gets their head out of their ass and wins back the WH). Even if you just break it down along approve-disapprove lines, disapprove tends to be in the high 40’s, approve in the low 40’s. It still remains a divisive issue, both ways.

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  18. Mook

    c) factually incorrect. Clinton’s 1993 budget passed without any Republican support. Historically, the Emancipation Act

    Dishonest as hell comparison as a Presidential budget is in no way comparable to major transformational legislation such as Social Security or Obamacare. Fail on honesty. Fail on logic.

    Historically, the Emancipation Act passed without Democrat support as did the 13th Amendment (you may have seen a movie about this).

    More extreme ignorance. The emancipation proclamation was an executive order. 16 Democrats voted for the 13th Amendment, which is 16 more votes than Republicans cast for Obamacare. Again, dishonesty and ignorance on your part Hal.

    You were wrong to use scaremongering language which you parroted from leftwing websites and you’re dishonest to try and pretend that Obamacare wasn’t passed using historic measures to suppress the opposition.

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  19. Hal_10000 *

    More extreme ignorance. The emancipation proclamation was an executive order. 16 Democrats voted for the 13th Amendment, which is 16 more votes than Republicans cast for Obamacare. Again, dishonesty and ignorance on your part Hal.

    Serves me right from trying to remember that off the top of my head. I looked it up. The no Democratic votes were for abolishing slavery in DC. And the votes I was thinking of were the 14th and 15th amendments.

    In any case, I still don’t see the relevance. That Bush’s Medicare D passed with a handful of Democratic votes didn’t make it a bipartisan love fest.

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  20. Section8

    “That I want the same thing — the repeal of Obamacare — is irrelevant.”

    Do you Hal? Why were you “secretly” hoping Obama would win then? In this case I can see your point that this is the wrong tactic at the wrong time, but unfortunately you ALWAYS think ANY tactic regarding the right is the wrong tactic at the wrong time. Sad that you write such great posts, only to have them so diminished with the flight reflex at every turn.

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