Financial markets are finally taking notice of the possibility that the United States may soon default on its debts. Interest rates on short-term debt and the cost of insuring against default have spiked, reflecting fears that U.S. debt won’t be repaid on time.
Few things about the looming crisis should come as a surprise. Anyone expecting a MAGAfied Republican Party, most of whose supporters don’t believe that Joe Biden was legitimately elected, not to weaponize the debt limit — a strange feature of U.S. budgeting that allows Congress to pass spending bills, then refuse to pay for them — was delusional.
Nor am I surprised that the Biden administration hasn’t yet adopted any of the possible strategies through which the debt ceiling might be circumvented. Many of the economic objections to such strategies are just wrong. But there are legal and political risks to a debt end-run that could roil markets, and I understand the administration’s reluctance to show its hand until the last minute.
One thing that has come as a surprise, however, is the cowardice of the self-appointed guardians of fiscal responsibility.
I’m talking about the various groups — business organizations like the Chamber of Commerce and the Business Roundtable, supposedly nonpartisan think tanks like the Committee for a Responsible Federal Budget — that played a very prominent role in the Obama years, successfully convincing much of the media and political establishment that debt, rather than a sluggish recovery, was the biggest economic issue facing America. The debt obsession, in turn, helped keep unemployment much higher for much longer than necessary, in effect costing America millions of jobs.
Now, I used to mock these groups as the Very Serious People and deficit scolds, suggesting that their real agenda had more to do with shrinking social programs — and reducing tax rates! — than with genuine concerns about debt.
Still, one might have expected even these groups to balk at the idea of fiscal policy through extortion, which, aside from violating any notion of an orderly budget process, could greatly worsen America’s fiscal situation by destroying our credibility and hence raising our borrowing costs.
Indeed, some reporting suggests that Biden administration officials expected these groups to put pressure on Republicans to avoid debt brinkmanship. But the actual response of the deficit scolds has if anything been to urge the administration to give in to blackmail.
Perhaps the most shocking behavior has come from the Committee for a Responsible Federal Budget, an organization that usually commands some respect, even from those who disagree with its priorities, for its technical expertise.
Given that reputation, C.R.F.B.’s response to the debt impasse was simply astonishing. It not only urged Biden to negotiate with hostage-takers but also declared that “the House passed a reasonable bill” to reduce the deficit.
The committee, which knows its numbers, has to know better than that. No, the House didn’t pass a “reasonable” deficit reduction plan; it didn’t even really pass a plan at all, just scribbled down some numbers with no explanation of how to achieve them.
The bulk of the claimed deficit reduction comes from imposing a 10-year cap on discretionary spending; by 2033 this would mean cutting spending 24 percent below current projections. Which programs would be cut? If some things like veterans’ benefits were exempted, would the immense cuts required elsewhere even be possible? Republicans won’t say.
Another big item in the G.O.P. proposal is slashing funding for the Internal Revenue Service. The Congressional Budget Office, like most independent analysts, says that this would increase the deficit, by hampering the government’s ability to go after wealthy tax evaders.
There’s more, and it’s almost all bad. Nobody who knows anything about the federal budget could honestly call this proposal “reasonable.”
So what’s going on here? There are two, not mutually exclusive possibilities.
One is cowardice. Organizations like the C.R.F.B. have built their brand around posing as nonpartisan, which is hard when the parties are as asymmetric as they are today — when a flawed but sane Democratic Party confronts the party of Marjorie Taylor Greene. The easy way out is to pretend that Republicans are being reasonable, even when they manifestly aren’t.
The other possibility is that the pose of being nonpartisan was always a fraud. Consider the fact that in July 2019, when Donald Trump was president but Democrats controlled the House, the debt ceiling was suspended for two years. Do you really think the C.R.F.B. would have described Nancy Pelosi’s position as “reasonable” if she had threatened to cause a financial crisis unless Trump reversed his 2017 tax cut?
In any case, one small benefit if we get through this mess — right now my guess is that Biden will end up invoking the argument that the debt ceiling is unconstitutional, but who knows? — may be to discredit deficit scolds who never deserved their past policy influence.