JONATHAN CHAIT MAY 18, 2011
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Carrie Bordoff Brown has a good story about the increasingly widespread belief among conservatives that failing to lift the debt ceiling would have no important economic consequences:
They are the newest breed of government skeptics, the swelling ranks of Republicans who don’t believe the Obama administration when it says a failure to raise the debt limit will prove catastrophic.
And they stand ready to make negotiations over raising the cap on debt as grueling as possible, making Treasury officials and Wall Street more nervous than ever that the country could suffer an unprecedented default with consequences no one can predict.
The suspicion, which once flourished on only the conservative outskirts of economic circles, has seeped into the mainstream in recent weeks, gaining broader acceptance among establishment Republicans, even as the administration issues increasingly dire warnings.
Andrew Pavelyev observes Paul Ryan arguing that the Treasury could stiff its creditors for a few days without much harm and asks if he's trying to spook the markets.
I don't think Ryan is trying to spook the markets, exactly. Part of what's happening here is simple game theory. Brown quotes conservative economist Kevin Hassett saying, "If you are going to play chicken, it helps that you’re not blindfolded." That's actually the opposite of the truth. The best way to gain advantage in a game of chicken is to convince your opponent you don't care about the consequences of failure, or that you can't avert them. Republicans want to use the vote to extract policy concessions, and convincing Democrats they think the ceiling doesn't require lifting strengthens their hand.
Of course, it's tricky to pull this off without also convincing yourself to believe this nonsense. But there has been a consistent pattern during the Obama administration of Republicans adopting previously marginal economic doctrines that they themselves had rejected. Most economists believe that reducing the budget deficit or raising interest rates during a liquidity crisis is harmful, yet most conservatives have adopted some variant of Austrian economics.
Take, for instance, Bill Kristol. In early January, when Michelle Bachmann floated the then-novel plan of refusing to lift the debt ceiling, Kristol gently pointed out that even the GOP budget would require a higher debt ceiling:
Having recently praised Michele Bachmann, and remaining a fan in general, I think it appropriate to register disappointment at her embrace of a silly position. On several conservative websites, you'll find a web ad featuring her and promoting a petition: "Tell Congress, 'Don't Raise the Debt Ceiling.'"...
This is irresponsible. I've seen no plausible plan that would enable us to go "cold turkey" (to use her term) fast enough or dramatically enough that we could reduce the deficit to zero in a few months--which is what would be required if Congress were not to authorize an increase in the debt ceiling.
As Bachmann's position started gaining credence throughout the party, Kristol stopped objecting. By May, he was on Fox News cheering her on.
Human psychology is too complicated to reduce this to pure partisanship. Rather, there have arisen a series of cases in which Republicans discovered a new policy position which allowed them to stand for something -- fiscal responsibility, low inflation, a chance to hold fast on the debt ceiling deal -- which most experts said would run a high risk of economic harm. That harm, of course, would dramatically increase the Republicans' chance of regaining power. I don't think many Republicans were consciously pursuing policies they believed would harm the economy, but the stark divergence between their interest and the fate of the economy made policies that would seem to pose dire economic risks far more intellectually attractive.
10 comments
Aren't these the same people who said "Cut taxes! It's good for America!", and "Privatize Social Security!", and "The financial markets will regulate themselves!", and "The bailout was a bad idea!", and "Privatize Medicare!". Why aren't these ridiculous suggestions met with the derision they deserve? We've already obligated the Federal Government to SPEND that money. Pretending we get a second bite at the apple to negotiate when we sign the loan is completely irresponsible. Pretending there's NO NEGATIVE RESULT to that irresponsibility is MORE of the same voodoo economics that got us here. If you've got a teenager who KEEPS playing chicken with the family car and insisting nothing can go wrong, you take the car away from him.
- AllanL5
May 18, 2011 at 3:09pm
You don't need Bill Kristol to know which way the wind is blowing.
- liberalref
May 18, 2011 at 3:19pm
Well, Obama doesn't need to play his hand till August, which is more than 2 months away. If the republicans are still playing chicken, I'd recommend he lays down the gauntlet, and say he will not be bullied into cutting Medicare, thereby branding republicans as anti Medicare. Then point out the fraudulence of republicans crying the deficit is an emergency, even as they refuse to vote down the tax give away to big oil. Finally, he should say that the fight to determine the 2011 budget is settled and the republicans should wait till 2012, rather than precipitating a collapse. If republicans refuse, then let them replay the Clinton shutdown, as it may harm the country, but at least present a political Waterloo where the dems may have the ability to convincingly win and thereby finish off energy policy and financial regulation.
- sokol8
May 18, 2011 at 3:31pm
I've said it before, but it bears repeating. Some people, mostly conservatives in my experience, believe it doesn't matter what they do because things will work out the same in the end, and America will be fine, no matter what.
It's nothing for me to imagine these ideologues telling themselves "screw the debt ceiling, we'll be fine, don't give Obama an inch."
- GSpinks
May 18, 2011 at 3:33pm
GSpinks - I think that's what they call normalcy bias.
- Jonas
May 18, 2011 at 3:57pm
Chait says, "I don't think many Republicans were consciously pursuing policies they believed would harm the economy . . . " I do. If they can damage Obama, they will gladly harm the economy and pretty much any other American interest to do it.
- roidubouloi
May 18, 2011 at 5:17pm
I agree with Roid. They've got their marching orders. It's the economy. If the economy is no good, Obama won't get elected. And they don't have to worry about being blamed. If they can convince people that less government spending is good for the economy and lower tax rates means more revenue, then they can blow up Hiroshima and blame the Japanese for leaving their island out there where a bomb could fall on it.
- Nusholtz
May 18, 2011 at 5:30pm
The later we hit the debt ceiling with nothing more to be done, the worse the consequences-- and we will hit it, unless BHO gives in to draconian budget cuts. That scenario was obvious 9-12 months ago and BHO and the Dems ducked the problem. BHO should not be taking extraordinary measures to preserve "normsalcy" to 8/2. Stop making key payments now. Like to many SS recipients. Put interest payments to bondholders in reserve, etc, etc. Make the point obvious that government spending is necessary.
- drofnats1
May 18, 2011 at 5:31pm
Jonas, it could very well be. That was an interesting little read, thanks for bringing it up. "Cognitive bias" looks like an interesting category on Wikipedia, I might have to do a little reading; I'm sure no small few of those biases are readily identifiable in today's political environment.
- GSpinks
May 18, 2011 at 5:46pm
For that matter, the burn-rate in Iraq and Afghanistan must be huge, are you SURE we can afford that, now that we're not allowed to borrow any more? Seems like having some soldiers just stay in their compounds 3 days a week would save some bucks...
- AllanL5
May 18, 2011 at 9:43pm