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Republican caucus is already contemplating a debt ceiling crash, refusing to raise the debt ceiling unless Obamacare is repealed or defunded.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.