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By Paul Krugman
As soon as Republicans took control of the House last November, it was obvious that they would try to take the economy hostage by refusing to raise the federal debt limit. After all, that’s what they did in 2011 — and hard as it may be to believe, the Tea Party Republicans were sober and sane compared to the MAGA crew. So it was also obvious that the Biden administration needed a strategy to head off the looming crisis.
More and more, however, it looks as if there never was a strategy beyond wishful thinking. I hope that I’m wrong about this — that President Biden will, at the last minute, unveil an effective counter to G.O.P. blackmail. He may even be forced to do so, as I’ll explain in a bit. But right now I have a sick feeling about all of this. What were they thinking? How can they have been caught so off-guard by something that everyone who’s paying attention saw coming?
For those somehow new to this, the United States has a weird and dysfunctional system in which Congress enacts legislation that determines federal spending and revenue, but then, if this legislation leads to a budget deficit, must vote a second time to authorize borrowing to cover the deficit. If even one house of Congress refuses to raise the debt limit, the U.S. government will go into default, with possibly catastrophic financial and economic effects.
This weird aspect of budgeting allows a party that is sufficiently ruthless, sufficiently indifferent to the havoc it might wreak, to attempt to impose through extortion policies it would never be able to enact through the normal legislative process.
What, then, should Biden & Co. have done once Republicans took the House? They could have tried to raise the debt ceiling during the lame-duck session. This would have been hard given an evenly divided Senate. If it was possible at all, it probably would have required making big concessions to those Democratic senators least supportive of Biden’s agenda. Still, better to have a hostage negotiation with Joe Manchin than with Marjorie Taylor Greene.
So unless there was a plan to deal with the coming confrontation, there should have been a major effort to raise the debt ceiling. The fact that there was no such effort suggested that maybe there was such a plan.
But all we’ve seen from Biden officials since the House changed hands has been a combination of assertions that a U.S. default would be catastrophic — which may well be true — and denigration of any and all possible end runs around the debt ceiling. My heart sank, for example, when Janet Yellen, the Treasury secretary, repeatedly rejected the idea of minting a platinum coin — one of several possible ways to bypass the debt limit — as a “gimmick.” Yes, it would be a gimmick, but it would also be harmless. As I explained the other day, it would not mean printing money to cover the deficit; in practice, it would amount to carrying out normal borrowing through a back door.
The problem is that Yellen was in effect saying that the administration wasn’t open to any strategies that sounded silly or unorthodox; yet every strategy that avoids the debt limit must, in fact, be unorthodox, and will probably sound silly if taken out of context.
The economic merits of various unconventional financing strategies aside, think about how the White House was positioning itself politically. On one side, it signaled that it was terrified of the consequences of default; on the other, it made it clear that it was unwilling even to consider any alternatives to an increase in the debt limit. The administration might as well have put a sign on its back saying “Kick Me.”
Maybe the administration expected moderate Republicans or business groups or supposedly nonpartisan advocacy groups to somehow step in and pressure the G.O.P. to produce a clean debt ceiling bill. But I don’t see how anyone who has been awake for the past 15 years could have believed that was a real possibility.
And sure enough, after months of asserting that it would never engage in negotiations over the debt ceiling, that it would accept nothing less than a clean increase, the administration is now … negotiating over the debt ceiling.
Many people have pointed out that this sets a terrible precedent, that having seen that extortion works, Republicans will engage in it again and again. Even these concerns, however, seem to me to be taking too long a view. Now that Republicans see what seems to be an administration on the run, there’s every reason to expect them to keep escalating their immediate demands — quite possibly to the point where no deal is possible.
There’s a precedent from the Obama years. Back in 2011, President Obama and John Boehner, who was then the speaker of the House, came very close to a so-called Grand Bargain on debt that would have been objectively terrible — it would, for example, have raised the age of eligibility for Medicare, even though life expectancy for working-class Americans had risen very little — and would probably have been politically disastrous for Democrats. But the deal fell through because Republicans were unwilling to accept even small tax increases as part of a deficit-reduction plan.
Sure enough, Republicans have reportedly rejected every proposal to make a debt ceiling deal more acceptable to the Democratic base by closing tax loopholes.
I have no idea what happens next. I think there’s a real possibility that Biden officials will in the end be forced by sheer Republican intransigence to adopt unconventional methods after all — a task that will be made much harder by the fact that those same officials have spent months trash-talking the approaches they may need to follow.
But I don’t see any way to regard this whole episode as anything but a disastrous failure to face up to the reality of an opposition party controlled by extremists.
Raising the debt ceiling would have been hard.
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