JONATHAN CHAIT MAY 18, 2011
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.