The Future Of Debt Ceiling Brinksmanship
By Taylor Marvin
Felix Salmon is afraid that debt-ceiling brinksmanship will become the new normal in Washington:
“The really depressing thing is that even if a deal does get done this month, the planning won’t have been in vain. Now that the Republicans can see how much leverage the debt ceiling gives them, they’re going to pull this stunt every time it gets near. The best-case scenario, with a big $2 trillion increase, would mean that we’re going to go through the exact same thing late in 2012; a more modest increase in the debt limit would set up a reprise of the current fiasco much sooner.
And that’s the invidious thing about low-probability events. Repeat the experiment often enough, and eventually they’ll happen. We’ll get a deal done this time. But one day, we won’t. And that day is not going to be a happy one.”
I’m a bit more optimistic, but would argue that the likelihood of a future debt ceiling catastrophe depends on the outcome of the 2012 presidential election and ability of congressional Republican leaders to enforce party discipline, at least in the medium-term.
Currently, congressional Republicans face strong constituent pressure to not raise the debt ceiling. Via YouGov:
However, if a failure to raise the debt ceiling before the August 2nd deadline results in significant disruption to the world economy, the percentage of Americans who believe not raising the debt ceiling in 2011 was a mistake will likely increase significantly. Republican leaders are clearly aware of this danger, which is made much more urgent by the rapidly approaching 2012 presidential election. If a costly failure to raise the debt ceiling allows Democrats to successfully portray Republicans as ideologues unfit for the responsibility of governance it will be very difficult for a Republican to win the general election, making the proximity of 2012 a moderating influence on the Republican leadership that likely reduces the brinksmanship risks they’re willing to accept. That’s why Republican are publicly articulating such a mixed message — most congressional Republicans are adamant that a debt ceiling deal that includes any revenue increases is not acceptable, while the Republican leadership is careful to quietly insist that a deal will eventually happen. However, if the Republicans lose the presidential election in 2012, this moderating influence will be gone. If Obama wins reelection — and especially if Democrats continue to hold the Senate — then congressional Republicans will have almost no incentive to not extract as many concessions as possible if the debt ceiling negotiation process can be pushed back until after the Presidential election. Given that the debt ceiling will probably have to be raised at least twice in an Obama second term, this pushes the Republicans’ acceptable risks of brinksmanship so high that a disaster is much more likely.
This logic will likely come down to how congressional Republican leaders judge Obama’s chances of winning reelection. If they think an Obama second term is likely, they’ll again try to delay raising the debt limit as a negotiation tool. If they judge a Republican presidential victory likely, congressional Republicans will probably try to quickly pass another increase in the debt limit under Obama to avoid the negative public perception impact of raising the debt ceiling under a Republican president. Counterintuitively, the likelihood of a future catastrophic failure to increase the debt ceiling is probably lower if a Republican in elected in 2012, because the Republican congressional leadership has less incentive to use it as a weapon. So perversely, we’re likely better off if the debt ceiling is raised by less than $2 trillion, because it means another debt ceiling fight will come up before the election, when the moderating influence still holds. If Obama wins in 2012, all bets are off.