The Opportunity Costs of the Debt Ceiling Debate

July 12th, 2011 at 6:55 pm

We live at a time of 9.2% unemployment, with tens of millions un- and underemployed.  The job market is stuck in neutral—if the economy were a bicycle, it would be wobbling along, threatening to keel over unless the rider paid some attention to the pedals.

And yet, instead of dealing with this fundamental challenge to the living standards of everyday people, Mitch McConnell, the Republican leader in the Senate, spent the day figuring out a way to avoid having to vote to raise the debt ceiling.

Clearly, he’s in the same mode as his house colleagues, who now argue that “it’s the administration’s debt ceiling.”

The proposal would have the President call for increasing the debt ceiling, and that call would trigger an equal-sized (nonbinding) cut in spending.  The Congress could vote against raising the ceiling, but they’d need a veto-proof majority to make that vote stick.

I’ve seen a bunch of analysis suggesting that Obama should like this deal.  He can raise the debt ceiling on his own, get credit for proposing spending cuts, and leave it to Congress to enact them or not.  Sure, he and the D’s (assuming they’d support his veto if the R’s “disapproved” of the debt increase) get tagged with raising the ceiling, but hey, that’s the price of being the grown ups.

Maybe this is the President’s best option if no others open up.  It does present a way for R’s to avoid triggering default without getting their fingerprints on the debt ceiling increase, and maybe that’s the best we can get.

But I don’t like it (I doubt House R’s will like it either, since it practically insures a debt increase with no commitment to spending cuts).  It’s a cynical ploy, an admission that you won’t take the responsibility to do the right thing, and it adds pretty deep complexity to what should be, and has been in the past, a pro forma vote against wholly avoidable economic pain.

Also, consider the opportunity costs being expended here.   Every legislative moment spent figuring out how to game the debt ceiling is not being spent preventing that bicycle from toppling over.

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17 comments in reply to "The Opportunity Costs of the Debt Ceiling Debate"

  1. D. C. Sessions says:

    One lesson that the Administration should have taken from this is to never approve a budget that doesn’t include enough of a rise in the debt ceiling to cover the Congressionally-mandated spending and (loss of) revenue. It would appear that somehow the President never considered that the House Republican caucus might actually play this game.

    Every legislative moment spent figuring out how to game the debt ceiling is not being spent preventing that bicycle from toppling over.

    Alternately, every legislative moment spent figuring out how to game the debt ceiling is not being spent figuring out how to cause additional damage to the economy.

  2. foosion says:

    What’s not to like? It’s essentially a clean increase. There will have to be a few votes, but no one (outside the beltway and a few of us political junkies) cares about the debt ceiling. There’s no meaningful political price above a normal debt ceiling vote.

    It’s a whole lot better than cutting $4 trillion and cutting Social Security, Medicare and Medicaid. We need stimulus, but no one in power is talking about going there.

    There will have to be a new budget in a few months, so we can have all those exciting conversations about taxes and spending as part of the budget battle.

    The US Chamber of Commerce, Business Roundtable and hundreds of fellow travelers published a letter today demanding that the debt ceiling be raised. It didn’t include anything about the evils of raising taxes. Who are the House Republicans to go against their corporate masters?

    Let’s declare victory and go home.

  3. ljm says:

    Did the constitution change? I thought congress was given the power of the purse. WIthout that they have nada. They already gave up the power to declare war by overlooking and funding all the unfortunate incident that aren’t actual wars to date, but sure look like wars. If we’re going to have a dicator or a monarch, what are we paying all these people for to “represent us?

    • foosion says:

      The power of the purse is the ability to appropriate funds (or not). We’re talking about the debt ceiling, which is just about paying for things that have been appropriated.

    • AZgram'O'wing says:

      Yes, constitution says that debts are to be paid…. These are debts that Congress voted ‘Yes” on since 2001 until now….Republicans voted for two unfunded wars, three unfunded TAX CUTS ( without off setting revenuer), unfunded Medicare ADVANTAGE plan, unfunded Medicare part D prescription drug program…
      Those items were placed on U.S.A. credit card… NOE is time to pay up on Credit Card bill…”Time for Congress to eat their peas”…

    • AZgram'O'wing says:

      Yes, constitution says that debts are to be paid…. These are debts that Congress voted ‘Yes” on since 2001 until now….Republicans voted for two unfunded wars, three unfunded TAX CUTS ( without off-setting revenue), unfunded Medicare ADVANTAGE plan, unfunded Medicare part D prescription drug program…
      …. items were placed on U.S.A. Credit Card… NOW is time to pay up Credit Card bill…”Time for Congress to eat their peas”…

  4. AZgram'O'wing says:

    Sorry… make that NOW is time to pay up on Credit Card bill…

  5. Rick Thomas says:

    Obama shrewdly put the Republicans in a box where their choices were 1) lose face (just raise the debt ceiling), 2) lose the election (raise taxes), or 3) lose the credit-worthiness of the US government. They opted for lose face, with an attempt at a face saving spin.

  6. Michael says:

    If the Republicans have a chance to both trash this country and blame it on a black guy . . . well, can you blame them for working to see their deepest desires come to pass?

  7. KW says:

    I think the larger tragedy is that this move sets a precedent for future generations of Presidents to unilaterally adjust the debt ceiling without congressional approval. How does eliminating the checks and balances between the president and congress by giving unilateral power to the president improve Americans position? I think it does not.

  8. Paul Daukas says:

    Hi…. I really hate to say this, but I think government has become extremely polarized. Years ago Simpson of Wyoming predicted this. I think the Republicans simply cannot get over that they lost the election to Obama and have just been ruthlessly obstructionist since then. Politicians from both sides have to work together now and for the future of this great country. Reagan and O’Neil , who worked together for the good of the country, would be very disappointed into what is now going on in Washington.

  9. Lee A. Arnold says:

    The President should not take the McConnell deal. He should say, in public: (1) If Congress wants to REVOKE the ENTIRE debt ceiling law, they can send that bill to my desk, and I will look at it. And (2) The Republican leadership should ask their House members where the money is going to come from for Social Security checks, when the economy defaults.

    All this fretting is based on the notion that Boehner and McConnell won’t raise the debt ceiling, and that is based on making you believe that they can’t raise the debt ceiling because of the Tea Party. That is a lie. That is why McConnell offered it at this time: to make you scared, and to hope your fear causes you to make a mistake.

    First, it is nonsense. If the Republican leadership is having any trouble at all, they can call upon their Wall Street and business buddies to stand up and put their foot down firmly on the Tea bags. Or they can call up Granny and tell her that the reduced revenues from a halting economy will stop her Social Security check. Or they can ask Warren Buffett and Alan Greenspan to come in and explain to the House why taxes must be increased.

    Question: If the Republican leadership finds the Tea wing to be such an intractable force, then why doesn’t the Republican leadership validate Obama’s warning on Social Security a few days ago? Granny has PLENTY of leverage with the Tea Party.

    The Democrats would be fools to let the Republican leadership off the hook. There is no upside to saving their skins. They have already been ditching the economy to ruin him. Do you think this will end? If Obama takes McConnell’s deal, it would guarantee a unified Republican Party, and no end to their vile shenanigans, for years to come. The Republicans can put the blame on Obama, and rally the Tea Party + the Independents + blue collars, to turf him out. Rick Perry will have his best campaign issue, handed to him on a silver platter.

    A wedge has been driven deep into the Republican Party between the leadership and the Tea wing. Don’t stop now.

  10. myth buster says:

    There is no deal, and never was. All McConnell did was end his own career. This proposal will never even be put to a vote, nor even debated officially.

  11. Steve Thompson says:

    Why is there so little discussion about the looming $100 trillion debt problem related to unfunded entitlement programs like Social Security and Medicare? In the best-case scenario, the debt added by these unfunded programs will result in a debt-to-GDP ratio of over 400 percent by 2050 as shown here:

    This additional debt of $100 trillion makes the $14.3 trillion debt pale into insignificance by comparison.

  12. Tim says:

    Since the spending cuts are nonbinding, president Obama should take the deal. Then he should proceed with cutting the “tax expenditures” by closing the loopholes in the tax code. He could also cut some fat out of the bloated defense budget. This really gives him an opportunity to simultaneously affect the change he wants AND move the discussion in the same direction.

    Regarding the argument about “raising taxes on the job creators”, I say call their bluff. Raise the marginal tax rate from 35% back to the Clinton era levels of 39.6%. Anyone who creates jobs and can demonstrate that they have done so would be allowed through tax credits to effectively reduce their tax rate back down from 39.6% to 35%. If they don’t create jobs, which a majority of them don’t, then the rate stays higher and the extra revenues go into a dedicated fund for infrastructure investment.

  13. William Starmer says:

    If grandma doesn’t have food to eat on August 3rd it will be the tea party’s fault. This may be a big game to the right wing extremists, buy my family members need a functional government that can work together to get things done. And the tea party is the cause of this whole stand off.

  14. Mary says:

    I should have read the older entries first, but I sort skipped around and didn’t see this till now. I guess I’m wondering why the push to deal with the longer term deficit situation now. I don’t understand the timing. This is in part why. I get the impression that Obama feels that this is the best opportunity to address these larger issues, but as you point out, there are opportunities costs. I am a very organized person. (It’s a little scary.) And one of the aspects to organization is dealing with things based on priorities (deadlines and importance).

    Priorities as I see them:
    1. Jobs
    2. Jobs
    3. Jobs

    The resulting opportunity cost of attempting to balance the budget or deal with longer term issues now is that we’re not talking about jobs. The only thing most people care about.

    Also, Keynesian economics dies with each breath expended on this conversation. The country needs to evolve from debunked Reaganomics, which is the grand daddy of zombie economics, into a simple but correct approach – counter-cyclicality. Regardless of party affiliation, this is the right approach for the US to take. The Republicans like to talk about American exceptionalism, yet their proposed policies are more suited for a middling to third world country with few options. The US is wealthy, powerful, and has the best line of credit available. This gives us privileges that other countries don’t always have. We can run deficits during recessions to revive our economy. We have a ton of latitude in our fiscal and monetary policies, and yet the Rs (and now the Dems…) want to impose unnecessary straitjackets. Having this conversation now reinforces this ill-timed preoccupation. Policies matter, but timing can matter more.

    And politically, I don’t understand the rationale behind tackling this before the next election. Senior citizens don’t seem to like it, and they actually vote. I think it’s important to remember that people are often irrational. What they say doesn’t necessarily match what they want.

    In my opinion, the debt ceiling increase should be performed perfunctorily. (It should have happened earlier, as part of previous negotiations, but that’s done, and here we are.)

    FYI I don’t intend to check the blogs on a regular basis anymore so if you address this, I may not get it right away. And thanks for the FMIs. They are awesome! I especially like the anecdotes and explanations. Till we next meet.