By Paul Krugman
Yesterday every single Republican senator voted to shut down the U.S. government and provoke a global financial crisis.
Of course, they claimed otherwise; Mitch McConnell, the Senate minority leader, portrayed the vote against raising the debt limit as a test of Democrats' ability to govern, and some of his colleagues claimed to be taking a stand for fiscal responsibility. But everyone involved understood that this was an act of political sabotage. And the terrible thing is that it might work.
The U.S. debt limit is a very peculiar institution, because when combined with the filibuster it gives a minority party the ability to undermine basic governance. You might think that once Congress has passed fiscal legislation — once it has passed bills that set spending levels and tax rates — that would be the end of the story. But if this duly enacted legislation leads to a budget deficit, which requires that the U.S. government issue debt, as few as 40 senators can then block the needed borrowing, creating a crisis.
And the crisis could be very severe. It's not just that the federal government would run out of money, forcing curtailment of essential services. U.S. government debt plays an essential role in the global financial system because Treasury securities are used as collateral in financial transactions around the world. During the brief Covid-induced financial panic of March 2020 interest rates on short-term Treasuries actually went negative, as frightened investors piled into the safest assets they could think of.
Make U.S. debt unsafe — make the U.S. government an unreliable counterparty, because its ability to pay its bills is contingent on the whims of an irresponsible opposition party — and the disruption to world markets could be devastating.
So why would Republicans flirt with such an outcome? Because they're completely ruthless — and they've learned the lesson of the New Jersey sharks.
Or, if you want to put it in slightly more pedestrian terms, the G.O.P. has now weaponized retrospective voting.
It has long been clear that voters are far less informed about parties' policy actions than we'd like to imagine, even when those policies touch their lives directly. Earlier this year most Americans received stimulus checks thanks to the American Rescue Plan, which was enacted by Democrats on a straight party-line vote. Yet a poll of rural voters found that only half gave Democrats credit for those checks; a third credited Republicans, not one of whom supported the plan.
So what do voters respond to? In general, they tend to support the incumbent party when things are going well, oppose it if things are going badly — even if the positive or negative events have no conceivable relationship to that party's actions.
The political scientists Christopher Achen and Larry Bartels like to use the example of the 1916 election, which was much closer than most people expected; in particular, Woodrow Wilson lost his home state of New Jersey. Why? Achen and Bartels make a compelling case that one major factor was the panic created by a wave of shark attacks along New Jersey's beaches. Whatever you think of Wilson, he wasn't responsible for those sharks. But voters blamed him anyway.
More prosaically, many presidential contests turn on how the economy was doing in the few quarters before the election, even though presidents usually have relatively little influence on short-term economic developments, certainly as compared with the Federal Reserve. When people voted against Jimmy Carter, they were really voting against Paul Volcker, the Fed chairman at the time, who pushed the economy into recession to curb inflation — but they didn't know that.
Of course, retrospective voting isn't new. What is new is the complete ruthlessness of the modern Republican Party, which is single-mindedly focused on regaining power, never mind the consequences for the rest of the country.
So ask yourself: If a party doesn't care about the state of the nation when the other party is in power, and it knows that its opposition suffers when bad things happen, what is its optimal political strategy? The answer, obviously, is that it should do what it can to make bad things happen.
Sometimes the sabotage strategy is almost naked. Consider Ron DeSantis, governor of Florida. DeSantis has done everything he can to prevent an effective response to the latest pandemic wave — trying to block mask and vaccine requirements, even by private businesses. Yet this hasn't stopped him from blaming President Biden for failing to end Covid.
And now comes the debt crisis. Nobody has ever accused McConnell of being stupid. He knows quite well just how disastrous failing to raise the debt limit could be. But the disaster would occur on Biden's watch. And from his point of view, that's all good.
From: Juan Matute <email@example.com>
Date: Tue, Sep 28, 2021 at 8:25 AM
Subject: Something to Know - 28 September
To: Juan Matute <firstname.lastname@example.org>
Today, the Senate considered a bill to fund the government until December and to raise the debt ceiling. The Republicans joined together to filibuster it.
Such a move is extraordinary. Not only did the Republicans vote against a measure that would keep the government operating and keep it from defaulting on its debt—debt incurred before Biden took office—but they actually filibustered it, meaning it could not pass with a simple majority vote. The Republicans will demand 60 votes to pass the measure in the hope of forcing Democrats to pass it themselves, alone, under the system of budget reconciliation.
This is an astonishing position. The Republicans are taking the country hostage to undercut the Democrats. If Congress does not fund the government by Thursday, the government will shut down. And if the country goes into default sometime in mid-October, the results will be catastrophic.
We are in this position now because Congress last December funded the government through this September 30 as part of a huge bill. The new fiscal year starts on October 1, and if the government is not funded, it will have to shut down, ending all federal activities that are not considered imperative. This year, such activities would include a wide range of programs enacted to combat the economic crisis sparked by the coronavirus pandemic.
Republicans have said they are willing to pass a stand-alone funding bill. That is, they are willing to continue to spend money going forward, even though to do so at the rate they want means raising the debt ceiling. Indeed, Senators Bill Cassidy, (R-LA), John Kennedy (R-LA), and Richard Shelby (R-AL) joined McConnell today to try to pass a new funding bill that would provide disaster relief to Louisiana and Alabama in the wake of Hurricane Ida and fund the National Flood Insurance Program (NFIP). They complained that "disaster assistance is long overdue" and that "it's critical" to extend flood insurance "so homeowners are covered come the next storm."
But while willing to add to the debt, they refuse either to raise taxes or to raise or suspend the debt ceiling that would enable the government to pay for it.
The debt ceiling is the amount of money Congress authorizes the government to borrow. Congress started authorizing a general amount of debt during World War I to give the government more flexibility in borrowing by simply agreeing to an upper limit rather than by specifying different issues of debt, as it had always done before. That debt limit is not connected directly to any individual bill, and it is not an appropriation for any specific program. Nowadays, it simply enables the government to borrow money to pay for programs in laws already passed. If the debt ceiling is not raised when necessary, the government will default on its debts, creating a financial catastrophe.
So, while a measure to fund the government is forward looking, enabling the government to spend money, a measure to raise the debt ceiling is backward looking. It enables the government to pay the bills it has already run up.
Not funding the government means it will have to shut down; not paying our debts means catastrophe. Both of these measures will hobble the economic recovery underway; refusing to manage the debt ceiling will collapse the economy altogether and crash our international standing just as President Biden is trying to reassert the strength of democracy on the world stage.
Led by Senate Minority Leader Mitch McConnell (R-KY), the Republicans are trying to tie the debt ceiling to the idea that Democrats are big spenders. They are determined to stop the passage of Biden's signature infrastructure packages, both on the table this week: a smaller bipartisan package that funds road and bridge repair as well as the spread of broadband into rural areas, and a larger package that funds child care and elder care infrastructure, as well as measures to combat climate change, over the next ten years.
Both infrastructure measures are popular, and if they become laws, they will reverse the process of dismantling the active New Deal government in which Republicans have engaged since 1981. The Republicans are determined to prevent at least Biden's larger package from passing. Killing it will keep in place their efforts to whittle the government down even further, while it will also destroy Biden's signature legislative effort.
But the Republican link of the debt ceiling to Biden's infrastructure package is disingenuous.
Raising the debt ceiling will enable the government to pay for debts it has already incurred. The Republicans themselves voted three times during Trump's presidency to raise that ceiling, while they added $7.8 trillion to the national debt, bringing it to its current level of $28 trillion. Further, Biden has vowed to pay for his new package in part by restoring some—not all—of the corporate taxes and taxes on our wealthiest citizens that the Republicans slashed in 2017.
This, Republicans utterly reject.
McConnell maintains that he does not want the U.S. to default on its debt; he just wants to force the Democrats to shoulder the responsibility for handling it, enabling Republicans to paint them as spendthrifts.
It is an extraordinary abdication of responsibility, driving the U.S. toward a disastrous fiscal cliff in order to gain partisan advantage. Treasury Secretary Janet Yellen warns that a default "could trigger a spike in interest rates, a steep drop in stock prices and other financial turmoil. Our current economic recovery would reverse into recession, with billions of dollars of growth and millions of jobs lost." Financial services firm Moody's Analytics warned that a default would cost up to 6 million jobs, create an unemployment rate of nearly 9%, and wipe out $15 trillion in household wealth.
The U.S. has never defaulted on its debt. Today Senate Republicans voted to make that happen.
In 1866, the year after the Civil War ended, Congress dealt with a similar challenge to the national debt. Democrats eager to undermine the United States wanted to protect the debt the Confederates had run up to rebel against the government, while demanding that the debt the United States had incurred to fight that war be renegotiated. Recognizing the ultimate power of financing to determine the fate of the nation, the Republicans in charge of the federal government settled the issue of the debts assumed by the two sides by writing their terms into the Fourteenth Amendment.
To pull the financial rug out from under former Confederates so they could not raise money to go back to war, the Republicans wrote in the fourth section of the amendment that "all…debts, obligations, and claims" of the former Confederacy "shall be held illegal and void."
And, to keep the Democrats from destroying the government, the Republicans wrote into the Fourteenth Amendment that "the validity of the public debt of the United States, authorized by law…, shall not be questioned."
The Democrats will likely split today's measure in two so they can fund the government ahead of Thursday's deadline and focus on the infrastructure bills also on the table this week. They will deal with the debt ceiling themselves, later.
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