JONATHAN CHAIT MAY 20, 2011
In recent weeks, we've seen an entirely new issue where conservatives have persuaded themselves to believe a proposition which experts, as a matter of objective reality rather than normative values, consider bonkers. The new belief is that the United States doesn't really have to lift the debt ceiling -- the strong version being that it's completely unnecessary or even beneficial, and the weak version being that the authorities are merely scaremongering. Like climate change denial and supply-side economics, the basis for this belief is an inscrutable mix of narrow self-interest (in this case, strengthening the GOP's bargaining position by adopting the classic game theory "mad man" position) and genuine ideological fanaticism. When the two forces are unleashed within the hermetically sealed environment of conservative movement thought, it can quickly expand into a powerful hallucinogenic notion.
Here, for instance, is Veronique de Rugy arguing that failure to lift the debt ceiling won't lead to a default on the debt or even the massive disruption of halting entitlement checks:
There is absolutely no reason for the U.S. to default on its debt unless it would like to. The U.S. owns roughly $2 trillion in assets that it can use, in addition to $2.2 trillion in tax revenue.
Also, it is really shocking to read Secretary Geithner continue to make threats about not being able to send out Social Security checks, Medicare payments, or military paychecks. This year, this would only be the case if Geithner decided not to pay for these obligations. According to the GAO, the Treasury secretary has the authority to prioritize payments, which means that, considering the country’s assets and revenue, there is enough cash to pay for these priorities and Geithner can make these payments first — that is, if he wants to.
Noah Kristula-Green points out some math problems here:
The Mercatus paper that de Rugy authored states that after paying off the debt, Social Security, Medicare, and Medicaid, that there would be only $400 billion left over for “other priorities”
So how much does that leave for say, the Department of Defense? (A part of the government that maybe a libertarian like de Rugy has no special love for but which Hannity certainly does.) Well the Defense budget for FY 2010 was more than $660 billion, and the Heritage Foundation would like to see Congress provide the minimum of $548 billion to the defense budget in FY 2011. So $400 billion is certainly not going to cover that.
And that’s just the defense budget. We still have the rest of the government to pay for. Nearly $500 billion in non-defense discretionary spending was spent in FY 2010. There simply will not be enough tax revenue to keep funding all services.
Does de Rugy think that the Treasury can or should plan a massive garage sale within the next ten weeks of all it’s assets? What if we get to late July and there is still no deal on the debt ceiling, does she think that a sale can be done in a week?
de Rugy notes that her paper “only lists financial assets rather [than] all of the things that Treasury could sell (such as lands and building)” To give a few real world examples of the prolonged process that it takes to sell government land and buildings, it was announced in 2005 that the Walter Reed Army Medical Center would be closed and sold in five years. Six years later, in 2011, I see that they are still trying to settle zoning issues and the purchase price for the facility. From doing a quick google search, I find out that military housing privatization can take between 8 and 14 months. The Bureau of Land Management says that it can take “a year or longer” to sell land. And does de Rugy think that if the markets know that the US is in a crisis and selling off assets to avoid a default, that the government would get anywhere near the best possible price for what they selling?
So I suspect that selling our assets off on short notice will likely not occur with the turn around needed to have this be a viable option.
Some of the other items on her list either don’t make the cut to be large enough to fill the gap (it turns out TARP won’t pay for the military) or they are retirement funds and trust funds.
If there is one thing I’ve learned from listening to Paul Ryan, it’s that it is important to make sure that people near retirement who have planned their lives around receiving benefits are able to receive them. This is why his plan has a firewall to keep Medicare the same for anyone older than 55. (Cynics may suggest that this is because the GOP has an older electorate, but let’s take him at his word.)
I assume that most politicians would prefer to keep the Military Retirement Fund, which she lists, as off limits for what the Treasury can raid in 2011. Think of the campaigns ads that could be run (“Congressman X allowed the retirement funds of our nation’s heroes to be depleted…”).
Perhaps some of these retirement funds are more equal than others and she can list which ones should be targeted first? Or maybe we should have Pat Toomey and Tom McClintock make the list? Either way, even de Rugy has writen that raiding the retirements of our soldiers can only drag this out until September.
The biggest problem, of course, is that the debt ceiling scenario introduces massive uncertainty into the financial markets. Not just the phony "uncertainty" talking point which Republicans have used to mean "any policy change that we don't like," but real genuine uncertainty. It might be mildly painful, or it might be a genuine catastrophe.
de Rugy and the Republicans argue that it's worth taking this risk because we must face up to the real debt crisis. But of course, we'd have to lift the debt ceiling even if the Ryan budget were passed into law tomorrow. And the notion that it's worth precipitating a crisis now to prevent a possible crisis somewhere in the future is utterly daft, like burning down your house to get rid of hazardous electrical wiring. It's really not clear how much of this argument is Republicans talking crazy to increase their leverage or convincing themselves of their own crazy talk. But I do think the markets are underpricing the risk inherent in a system of government whose continued functioning requires the ascent of an out-party that both stands to gain from economic catastrophe and is increasingly retreating to a world of little fantasy bubbles.