Tilly: A credible threat

BY ZACH TILLY | OCTOBER 09, 2013 5:00 AM

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The U.S. Treasury estimates that by Oct. 17, it will no longer be able to fund the government unless it is allowed by Congress to resume borrowing money. For that to happen, the House and Senate will have to raise the debt ceiling — an essentially arbitrary cap on government borrowing that must be raised periodically to accommodate the nation’s growing debt.

Raising the debt ceiling doesn’t increase spending; it merely allows the government to issue debt to pay for its current financial obligations, but fights over the debt ceiling have nonetheless become ground zero for the nation’s budget debate.

If the debt ceiling is not raised and the country can’t pay off the charges it has racked up, the country could default on its obligations to its creditors. The resulting damage to the economy would be catastrophic. Exact estimates are hard to come by, but the consensus among such executives as Warren Buffett and Goldman Sachs’s Lloyd Blankfein is that a default would be a catastrophe greater even than the fall of Lehman Brothers in 2008, which precipitated the last recession.

Despite the looming threat of default, House Republicans have intimated that they will only raise the debt ceiling if the Obama administration agrees to negotiate, to grant some kind of concessions in exchange for a the debt ceiling hike.

With just a little over a week left until the Treasury’s funding will be nearly exhausted, the debate over the debt ceiling is mostly centered on whether the Republican plan to extract concessions by threating economic devastation is legitimate.

In a statement Tuesday, President Obama likened the tactic to a threat of arson.

“If you’re in negotiations around buying somebody’s house,” he said, “you don’t get to say, well, let’s talk about the price I’m going to pay, and if you don’t give the price, then I’m going to burn down your house.”

Republicans, on the other hand, say that legislation to raise the debt ceiling has traditionally been tied to deficit-reduction plans or other legislation, so Obama, by refusing to negotiate, is actually responsible for the threat of default.

So, which side of the narrative is true? Is this year’s debt ceiling extortion a dangerous new form of kamikaze governance or simply a commonly used tool for congressional minorities? 

Since the late 1930s, when the debt ceiling in its common form was born, it has been raised a lot — almost every year. Most of the time, it hasn’t been a big deal. Debt-ceiling raises were typically rolled into larger pieces of legislation.

But it’s certainly been used in the past to gain political leverage. In 1984, the congressional Democrats threatened to not raise the debt ceiling in protest against Republican deficit spending. In 1989, a deal to raise the debt ceiling passed by congressional Democrats also repealed a tax on certain health-insurance plans.

During George W. Bush’s first term, congressional Democrats held up a number of debt-ceiling increases, each of which ultimately passed thanks to the looming threat of a default.

Obama argues that the current Republican efforts are different because they have explicitly threatened the country with a default. This rings a little hollow, though — it seems unlikely that past efforts to extract concessions in a debt-ceiling deal would have worked in the absence of a credible threat of default.

But even if the claim that the House GOP’s behavior is unprecedented isn’t entirely true, that doesn’t mean that the House GOP is behaving acceptably. Historical precedent, however robust, does not justify threatening to wreck the economy to achieve a legislative goal that cannot be achieved legitimately.

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