The Case for Moderate Optimism on the Debt Ceiling

Sometimes a writer needs to get out of his comfort zone. My comfort zone is pessimism.

About everything, really, but especially politics. Especially, especially Republican politics.

If you read this newsletter regularly, you know I’ve been true to form about the risk of an economic calamity caused by brinkmanship over the debt ceiling. This piece can be distilled to one quote: “The nuts in the new House majority are really going to do it.”

I stand by that. At least, I stand by the claim that there are many nuts in the new House majority who are prepared to go nuclear. If you disagree, watch this brief interview with Indiana Rep. Greg Pence. Will you agree to raise the debt ceiling, CNN reporter Manu Raju asks him. Nope, says Pence. Raju sweetens the pot: What if Democrats meet all of your demands?

Nope.

He’s half-joking, but it’s probably true that the folks “back home” don’t want him to raise the debt ceiling under any circumstances. The latest national poll from YouGov finds Republican voters opposed to doing so, 55 percent to 20 percent, and willing to condone a government shutdown if a deal to raise the ceiling can’t be reached, 50 percent  to 34 percent. For many grassroots conservatives, the point of this hostage-taking exercise isn’t to gain concessions on spending or anything else. The point is to shoot a hostage that’s valued by the enemy.

Pence and his colleagues have a duty to govern responsibly even if their constituents feel otherwise. But the YouGov data returns us to a point from yesterday, that the leaders of a party that’s rotten at its roots will behave only so reasonably themselves. Pence and others from red districts find themselves caught between representing their constituents’ best interests, i.e. averting default, and representing their constituents’ desires, i.e. defaulting. If they prioritize the latter, they’ll trigger a crisis in global markets. If they prioritize the former, they’ll be replaced in two years by “fighters” who prioritize differently.

How’s that for pessimism?

Still, lately I find myself nagged by the unfamiliar feeling that I’m … overestimating the risk that we’ll hit end up defaulting on our debt. Even more discomfiting, smart guys like Ramesh Ponnuru and Yuval Levin think we’re all collectively underestimating the risk. I don’t like being on the other side of either of them on any issue, particularly one that puts me in the role of optimist.

If people whose judgment I trust won’t reassure me, I’ll have to do it myself. Is there a case for moderate—emphasis: moderate—optimism that the debt ceiling will be raised before America’s creditworthiness turns to ash?

Maybe. Let’s go point by point.

1. Washington is already scared.

The core of Ponnuru’s argument is that the two parties and, as importantly, global markets are far too calm about the growing risk of default given that we’ve already technically hit the debt ceiling. Democrats are dug in because they believe they’ll benefit politically if Republicans force a default, which reduces their incentive to negotiate; Republicans are dug in because they believe Democrats will capitulate, not wanting to invite an economic crisis while their party controls the White House; markets are stable because they believe a deal will get done in time just like it always got done in the past. A little panic would go a long way toward shaking everyone out of their foolish complacency, Ponnuru argues.

I’m not sure that the two sides really are complacent about the strength of their respective positions, though. Recently Politico spoke to a number of Washington veterans of the 2011 debt limit standoff and found plenty of bedwetting on both sides despite the fact that default is still months away.

“It feels like there’s a desire to get closer and closer to the brink,” said David Vandivier, who was a senior Treasury official during the 2011 negotiations. “At a certain point, you don’t know where the line is.”

…

“I wish I could look at this, having been through a bunch of these, and say there’s going to be a bunch of drama but this is how it gets resolved,” said Brendan Buck, an aide to then-GOP House Speaker John Boehner during the 2011 debt negotiations. “But I don’t know how this gets resolved. There are just huge obstacles here [that] I don’t think were quite as problematic in 2011.”

…

“Boehner may have been willing to put more of his ass on the line. He did intellectually and substantively understand why default was terrible,” [former Obama senior adviser Dan] Pfeiffer said. “I’m not sure that McCarthy understands that, that McCarthy cares, that McCarthy would value the full faith and credit of the United States over his own job.”

McCarthy has been adamant that there won’t be a default, putting him in the odd position of having taken a hostage whom he loudly and repeatedly refuses to shoot. But the fact that he feels obliged to deescalate his own brinkmanship is comforting inasmuch as it signals Republican leaders grasp the gravity of the situation. So, it seems, do most of their members, as few of them are issuing threats about hitting the ceiling if their demands aren’t met. “I think most everyone is in the camp of ‘can’t default.’ The full faith and credit of the country is important, terribly important,” Rep. Steve Womack told CNN while stressing that he expects some “spending restraint” from Democrats.

Republican voters might not understand what hitting the debt limit means or, if they do, might not care about the consequences. But I suspect most of their representatives do, and most of their media. There are scant substantive arguments in the right-wing press that default would be good for the country and useful for the Republican Party. To the contrary. McCarthy’s caucus isn’t going into this blind.

2. No one takes Republicans seriously on fiscal restraint anymore, including Republicans.

Harken back with me to 2011. America was recovering from the 2008 financial crisis. Paul Ryan was the toast of the GOP for his evangelism on entitlement reform. Donald Trump was a game-show host who had only briefly dipped a toe into politics by demagoguing Barack Obama over his birth certificate.

It was a simpler time. In 2010, an enormous midterm wave driven by a backlash to exorbitant federal spending had swept Republicans to power in the House. The bailout of the financial industry, a gigantic stimulus package, and the passage of Obamacare led to scores of Tea Party conservatives being elected on promises to change course. Because they had an electoral mandate, and because their small-government agenda aligned closely with the priorities of the Republican base, there was reason to believe John Boehner’s majority was in earnest when it forced a showdown with Obama over cutting spending during the 2011 debt ceiling standoff.

It’s impossible to believe that Kevin McCarthy’s majority is in earnest. And a majority whose good faith is in doubt is a majority with less room to drive a hard bargain.

“It’s very strange not to seriously pursue a deeply held goal when you have unified control of Washington, then to insist on trying to achieve much of it in one fell swoop when you barely have control of one chamber of Congress,” an arch Rich Lowry wrote recently of the GOP’s halting commitment to cutting spending. After the spending orgy of Trump’s presidency, during which he and the Republican Party made no pretense of caring about debt and deficits, a reboot of the 2011 debt ceiling standoff in 2023 falls squarely into “first as tragedy, then as farce” territory.

The caucus itself isn’t taking the matter terribly seriously. Not only hasn’t it agreed yet on the demands it intends to make of Biden, it’s been elusive about specifying any demands at all. Some individual members who have, like Chip Roy, want to broaden the scope of the negotiations from cutting spending to temporarily barring border crossings by asylum-seekers, a proposal opposed by some fellow Republicans. Others want to focus on cutting federal spending for “woke” programs, as if to prove the point that every Republican policy priority nowadays is ultimately just an excuse for culture war.

Other members of the House’s MAGA wing who are hellbent on a debt limit cliffhanger can’t name the concessions they want to avert a crisis. “There’s gotta be cuts in spending. That has to happen,” Marjorie Taylor Greene warned NBC, but when asked which cuts she wants to see, she replied feebly, “I haven’t really formulated an exact list.” When budding populist star Anna Paulina Luna was asked the same question, she said she wants an amendment that’ll balance the federal budget in 10 years—without tax increases or cuts to Social Security and Medicare. If you know anything about budgetary math, you’ll recognize her answer as being less serious than even Greene’s.

That’s what happens when you care less about ransoming a hostage than inventing excuses to shoot him.

If you’re going to deliberately tank the global economy, it helps if your reason for doing so is compelling and you’ve demonstrated an ironclad commitment to it in the past. When instead your commitment is cynical and situational depending on which party controls the White House, your credibility is shot. Good luck winning a P.R. war against Democrats in the aftermath of a market meltdown in those circumstances.

3. House Republicans are keenly aware of their own dysfunction and the risks it presents.

I wonder if, in hindsight, we won’t view the GOP’s weeklong ordeal to elect a speaker as less a fiasco than a blessing.

Yuval Levin’s case for pessimism about the debt ceiling rests on the size of McCarthy’s majority, which is freakishly narrow by historical standards. It’s true that the 2011 standoff and lesser battles over the debt ceiling were resolved with agreements, he notes, but that’s because the speakers who negotiated those deals could afford to write off a few dozen votes from their own caucus to pursue them. McCarthy doesn’t have that luxury. Any four Republicans can tank any bill he brings to the floor, assuming House Democrats also vote in lockstep against it.

No doubt, McCarthy would prefer to have a 50-seat majority. But the political pain he suffered at the hands of Matt Gaetz and the “Never Kevin” wing may have been useful to him long-term by showing the rest of the caucus in gory detail how dysfunctional things could get if they’re not willing to be reasonable during debt ceiling negotiations with Democrats. A populist faction that’s willing to humiliate its own leader just to show the Newsmax audience that it means business is a faction that might be willing to use the credit of the United States to the same end.

In this case, in other words, it may be “first as farce, then as tragedy.” Having now witnessed the sort of farce that Gaetz and the rest are capable of, a swing-district Republican might be more amenable to compromising on minor spending cuts in the name of averting an economic tragedy than they were a month ago. 

The McCarthy saga may have been useful in another way. Because it commanded the undivided attention of the news media for upward of a week, it educated even casual voters on the degree of dysfunction within the Republican caucus. That education will inform how Americans assign blame for any debt default to come. If the two parties ultimately can’t get together on a deal before a crisis strikes, my guess is that voters will be more likely to fault a GOP that was willing to obstruct its own leadership than it would a GOP that had managed to elect Kevin McCarthy without a hitch.

The dynamics of the new Congress in the other chamber might also steer some ambivalent House Republicans toward compromise.

Had the GOP retaken the Senate, the party would have come under heavy pressure from the base to seek maximalist concessions from Biden. Mitch McConnell would have been squeamish about a pointless fight over the debt ceiling, but many of his colleagues would have been gung ho. Conservatives in either chamber who were on the fence would have tilted toward brinkmanship rather than align themselves with the MAGA base’s least favorite establishment Republican, the “broken old crow” who never “fights.” The right would have demanded a dramatic confrontation between the despised Democratic president on the one hand and a united front of House and Senate Republican leaders on the other.

With Democrats in charge of the Senate, the stakes are lower. The GOP’s midterm failures have handed McCarthy a ready-made excuse not to seek aggressive concessions, namely that Chuck Schumer will block them before they reach Biden’s desk. The task is no longer to present a reluctant president with a package of ambitious spending cuts and demanding that he sign or see America default. The task is to present a package that’s modest enough to make it to the Senate floor and somehow attract 60 votes in favor.

Post-midterm, McCarthy can plausibly say to Republican voters that the party should be judicious and realistic about what it can achieve this year with the debt ceiling and to strive instead for total control of government in 2025 so that it can slash spending then. (The GOP will not be slashing spending if it regains total control of government in 2025, needless to say.) A Democratic Senate makes that excuse more reasonable than it otherwise would have been.

There’s one more factor that might point House Republicans toward compromise. Two words: Joe freakin’ Manchin.

Manchin is up for reelection in 2024 in a state Trump won by nearly 40 points. He’ll be looking for new opportunities over the next year to burnish his conservative credentials before he faces a heavily Republican electorate—and seems to have found one in the debt limit. Where most Democrats in Congress view raising the ceiling as non-negotiable, Manchin has endorsed a compromise on spending to get a deal done. He met with McCarthy recently and came away urging his party to make a deal: “We’re going to have to bring a group of Democrats together that is willing to work and meet him halfway,” he said of the new speaker.

With the possible exception of Kyrsten Sinema, no one in the Senate has more bipartisan credibility than Manchin. (Although less so than he had before he double-crossed the GOP on the Inflation Reduction Act.) By breaking with his party and conceding that McCarthy is right to demand concessions, he’s offering the sort of face-saving gesture to the House GOP that the party will need to make it out of this hostage crisis alive. If he can get together with McCarthy on a minor package of deficit reduction, maybe that’s the opening that majorities in both chambers need to resolve this crisis.

4. Republicans—and Democrats—fear being blamed if America defaults.

I take Ponnuru’s point about each party smugly believing that the other has more to lose from default. Certainly, that’s how each is posturing. But does the posturing reflect reality?

Consider that Biden and McCarthy are meeting on Wednesday to discuss the debt ceiling. That’s a photo op, not a substantive discussion, granted, but the fact that both men felt obliged to stage that photo op when we’re still months away from default shows how anxious each side is about being blamed by voters if we hit the ceiling. For all his admonitions to the right about not negotiating over the debt limit, Biden is keen for voters to see that he’s not refusing to do his part to find a way out of this mess. He needs to present himself as reasonable by talking to McCarthy. Both sides do.

My guess is that most House Republicans understand already that any concessions they receive from the White House will be token, more cosmetic than meaningful in reducing the debt. It can’t be otherwise, frankly, since entitlement reform is the only path to fiscal stability and Republicans themselves have ruled that out. The more modest the GOP’s proposal is, though, the more difficult it’ll be for Democrats to say no and opt for an economic meltdown instead. At some point, the Republican demands could become so inconsequential that refusing to agree will make Democrats look like the side that’s inviting a crisis.

McCarthy needs Biden to give him a little something to save face. The less he wants, the harder it’ll be for the White House to explain why they won’t give it to him. That points toward compromise.

I’ll leave you with one last optimistic note. Recently Josh Barro made the case for a short-term increase to the debt limit, just long enough to move default from sometime this summer to sometime this fall. Why? Because funding for the government—specifically, the Pentagon—will run out in the fall as well, raising the prospect of a double-whammy if Congress can’t get its act together. Barro thinks that Republican hawks, faced with the prospect of money for the troops being cut off, will be more willing to compromise on a package that includes raising the debt ceiling long-term if the Dems play ball on military spending. Which they probably will.

As it turns out, House Republicans are in fact considering a “clean” short-term debt ceiling hike in that vein already. If they’re willing to move the deadline for default to the fall, when both sides will be freer to wheel and deal using government funding, they must already be considering a compromise of the sort Barro describes, at least in the abstract. We might make it out of this alive after all!

But probably not. When in doubt, choose pessimism.