Who Wins If There’s No Debt Deal?

The idea that the GOP can block a debt ceiling vote and benefit politically is, quite simply, absurd.

In response to Erick Erickson’s contention that any economic catastrophe that results from a failure to raise the debt ceiling would be blamed on President Obama,  David Weigel makes this point:

Who actually thinks this? The polling suggests that people will blame Republicans if we lose our bond rating, because 1) Republicans demanded that this vote be used to get leverage and 2) have insisted that nothing will happen if the limit isn’t raised.

(…)

About creative destruction — we need to be clear on this. The ideological, libertarian plan in September 2008 was short-term pain and collapse as a way of staving off an expensive lost decade, during which government would try to perserve the failing financial system. Plenty of Republicans look at what we got after TARP and think we would have been better off with a collapse followed by a rebuild. And there’s definitely that strain of thought in the debt talks — there are Republicans who say a default or downgrade would shock us into cuts and be worth the pain. But try and square that with Erickson’s point that Obama would get the blame for default. Voters can be stupid, but not this stupid.

That Quinnipiac poll that Weigel links to, where respondents say that they’d blame the GOP if there wasn’t a deal and the economy tanked, was enough to convince Jonathan Podhoretz:

At some point, those who believe it will be acceptable to go to August 3 without an increase in the debt limit, as well as those who believe the politics favor the Republicans, are going to have to reckon with the fact that there are no data points supporting their beliefs. The way things are going, if August 2 comes and goes without an agreement, there will be a worldwide panic that would have catastrophic immediate consequences in the equity markets. And when Obama says, “I warned and warned and warned and they didn’t listen,” any attempt to offer a counterargument is going to sound very hollow.

And Megan McArdle picked up on Podhoretz’s comments:

Voters are telling pollsters they’re going to blame the Republicans for the shutdown.   And the spending cuts you’re going to do won’t even be that popular with the tea party, who aren’t much more enthusiastic about Medicare/Medicaid cuts than the rest of the country.

To me that sounds like “huge Democratic victory in 2012”.  I know, I know–if it’s so “great for Democrats”, why aren’t they urging this course?  Well, one school of thought says that they are–and neatly maneuvering the blame onto the GOP, thanks to the tea party’s very vocal intransigence.  But if that’s a little too Machiavellian for your taste, the simpler answer is that this can be lose-lose.  If we shut down the government, key social programs get hurt, the economy contracts, and the Democrats have to cut spending in a recession in order to make the budget balance after this little contretemps raises our interest rates.  But the fact that the Democrats are worse off doesn’t mean that the Republicans are better off.  The Democrats can lose while the Republicans lose even bigger.

That has implications, not just for the debt ceiling, but for a whole range of problems.  Republicans have a decent shot of taking the White House and the Senate in 2012; by throwing that away with both hands they also throw away their best chance at repealing ObamaCare before it starts irrevocably altering health care markets.  They also ensure that any deficit-reduction deal we do post election will be heavily weighted towards tax hikes; give Democrats a fresh crack at all the bits of the Obama agenda that they ignored in favor of passing health care; and probably let them preside over a mid-decade recovery that will leave the GOP in a very difficult electoral position in 2016.

Greg Sargent notes that there is already a radio ad campaign targeting three freshman Republicans over their position that they’d never vote for an increase in the debt ceiling. John Sides disagrees, and believes its President Obama that is most at risk:

For one, I’d be impressed that more Americans say they’ll blame the GOP and not Obama if most Americans actually wanted to increase the debt ceiling in the first place. See Mark Blumenthal’s thorough rundown of the polls.

Second, during the 1995 shutdown, Clinton’s popularity went down during this time — although this fact seemingly cannot penetrate the conventional wisdom. See my earlier post. Yes, the polls also weren’t kind to Gingrich and the GOP, but it is hard to claim that Clinton benefited in the eyes of voters. There is certainly no evidence that I know of that the shutdown helped re-elect Bill Clinton. It’s interesting that McConnell thinks that, if only because it appears to guide his actions now. But I don’t think it’s true.

Finally, even though this fight over the debt ceiling is unusual, I have a hard time imagining that Obama is going to emerge unscathed if the ceiling isn’t lifted and the economy suffers. After all, incumbent politicians are punished by voters for a thousand trivial things, even losses in college football games. I am hardpressed to imagine that voters will suddenly exonerate Obama from possible economic disruptions and simply blame the GOP. To be clear, I don’t think either party would come out of a debt ceiling meltdown smelling like roses. But let’s not pretend that Obama will somehow avoid that.

Or put it this way: what if the meltdown led to, say, 1-2 months of bond rating markdowns, stock market convulsions, disruptions of key government services, and wall-to-wall media coverage of the same? What happens to Obama’s approval rating in that time? My bet is that, just as with Clinton in 1995, it goes down.

But, of course, Bill Clinton was re-elected in 1996 and, when it came to the war between Clinton and Gingrich, it was Clinton who clearly emerged from that battle as the victory. This time, it’s Obama in the Clinton role, and Eric Cantor playing the role of the recalcitrant Republican. Does anyone really think that, if the debt ceiling weren’t raised and the economy was thrown into a tailspin, that the GOP would walk away from this as the victor? Just the other day, I thought the answer was probably no, but I’m starting to reconsider that conclusion

At least in public, the President is putting out a position clearly designed to make him appear to be the adult in the room. He’s asked for a “grand bargain” that  included entitlement reform and some tax increases, and the GOP incomprehensibly rejected it.  Instead they’re beholden to a Tea Party strategy that isn’t necessarily going to resonate with the public as a whole, especially when it comes to the issue of taxes on wealthier Americans. More importantly, though, if it’s the GOP that comes across as the party that killed a deal, then there’s simply no way that they aren’t going to be blamed by the public.

McArdle is right that the 2012 elections are at stake in these negotiations. If the GOP screws up, they might not only end  up with Barack Obama still in the White House, but with Harry Reid still Senate Majority Leader.

FILED UNDER: Barack Obama, Campaign 2012, Congress, Deficit and Debt, Politicians, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020.

Comments

  1. Jay says:

    The adult in the room hasn’t even put forward a budget outline.

    I’m getting sick and tired of the media (yes the media – not the liberal media but the media) acting as though Obama has put forward a specific list of areas where he will accept cuts. All he has done is said, “We’ll look at ________” or “_______ is on the table” and the media goes out and reports it that way while saying the GOP is being difficult.

    Meanwhile, the GOP is the only ones in the room who have offered up a budget with specifics. The Senate Democrats have not even brought a budget outline to the floor in over two years.

    President Obama ignored his own debt commission. The budget plan he submitted in January was rejected 97-0. His next plan was nothing but a speech wherein he was rebuked by the CBO who said, “We can’t grade a speech.”

    I’m with Krauthammer on this one. Call the President’s bluff. Dare the President to veto (or have the Democratically controlled Senate) block a short term debt limit increase. He can then explain to the public that the nation defaulted on its debt obligations because he didn’t want to deal with it again before the next election.

  2. Dustin says:

    Here’s the problem, everyone is worried about the gains and losses as they pertain to the 2012 election and those who have a direct interest in them. Not enough people seem to be worried about what the rest of the country stands to lose, and lose hard.

  3. Neil Hudelson says:

    Who Wins If There’s No Debt Deal?

    The American People!

  4. MM says:

    @Jay: And this is the problem in a nutshell. You are conflating a lot of issues with the debt ceiling.

    The debt ceiling has always in the past been a clean vote.

    Now you are tying it to budget proposals and spending cuts and the debt commission.

    The debt ceiling is not a budget. The deficit commission was not about the debt ceiling.

  5. lunaticllama says:

    @Neil Hudelson: How do the American people win if Washington intentionally throws the economy into a recession?

  6. ratufa says:

    How do the American people win if Washington intentionally throws the economy into a recession?

    To be a bit snarky: Consider it “tuition” for a lesson as to what happens when you listen to the “drag government into the bathroom and drown it in the bathtub” crowd. Though, that may not be what Neil meant.

  7. Ron Beasley says:

    There will be no winners, only losers. That said I believe that at some point the US will default. Because of resource limits we will never see the kind of economic growth necessary to pay the debt. And I’m not just talking about oil. It’s iron, copper, phosphorus and the list goes on. Our electronic culture depends on tin for solder. Tin production is declining as demand increases.
    So raising the debt limit now may just be another case of kicking the can down the road. At some point we will all be Greek.

  8. Steve Verdon says:

    And I’m not just talking about oil. It’s iron, copper, phosphorus and the list goes on. Our electronic culture depends on tin for solder. Tin production is declining as demand increases. So raising the debt limit now may just be another case of kicking the can down the road. At some point we will all be Greek.

    I thought we did away with this Erlichean nonsense.

  9. Terrye says:

    Neil:

    The American people win? Really? I work for a home health care agency and right now things are tough. There have been cuts and that has lead to downsizing. We take care of private pay people, veterans, medicare, medicaid and insurance…however, if the deal is not made the government does not pay us for the work billed on the medicare and medicaid and veteran patients..we might well close down. A lot of people will lose jobs and the people we care for will lose that service..and you know what? Those people are Americans.

    The truth is if a deal is not made, we will all pay. For the life of me I do not understand this insane desire to go off this cliff. It is like using amputation as a form of weight loss.

    Ronald Reagan had to face a debt limit increase and he had this to say:

    In a November 1983 letter to then-Senate Majority Leader Howard H. Baker Jr. (R-Tenn.), Reagan warned that without a higher debt ceiling, the country could be forced to default for the first time in its history.

    Reagan wrote: “The full consequences of a default – or even the serious prospect of default – by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar.”

    Was he perpetrating a hoax on the American people, or was he doing what was best for the country as a whole? I think it was the latter.

  10. Ben Wolf says:

    @Jay

    The whole point of the negotiations is to arrive at a series of cuts and tax increases acceptable to both parties. Hard to submit a plan when those negotiations haven’t concluded. It seems like there are a lot of people out there (like yourself) who think trying to work out a deal means demanding the other guy surrender unconditionally.

    And you think you’re fit to run the country, for f*ck’s sake.

  11. Ben Wolf says:

    @Terrye: Neil was being sarcastic.

  12. legion says:

    There are a lot of people who ought to get their genitals curb-stomped over this whole fiasco, and Podhoretz is far from the worst, but he’s a shining example of anti-American dickholery… He _knows_ hitting the debt ceiling will nuke the US economy, but he was _fine_ with that as long as he thought Obama would get the blame. As soon as he thinks he & his might have to pay some sort of price for their suicidal irresponsibility, _that’s_ when he wants to pull back.
    Slimeball.

  13. Dave Schuler says:

    Who wins? Currency traders.

  14. An Interested Party says:

    If the GOP screws up, they might not only end up with Barack Obama still in the White House, but with Harry Reid still Senate Majority Leader.

    And perhaps even with Nancy Pelosi returned to the Speaker’s Chair…

  15. Terrye says:

    Ben:

    Ohhhhh. I am such a dummy.

  16. OzarkHillbilly says:

    Who Wins If There’s No Debt Deal?

    THE CHINESE!!!

    Oooopppps, wait a minute, they own most of our debt and if we default treasuries will instantaneously convert to junk bond status…

    Nahhhh, we’re all f*cked.

  17. OzarkHillbilly says:

    Ohhhhh. I am such a dummy.

    HEY! You stole my line!

  18. Polaris says:

    Historically, presidents have always been blamed for the state of the economy whether it was their fault or not. In fact entire elections can be modeled (generally quite accurately) simply based on the state of the economy.

    Bottom line, whether you personally agree or not, the US Electorate does punish Potus (and not Congress) for the state of the economy, and I don’t see that this would be any different.

    -Polaris

  19. ponce says:

    Historically, presidents have always been blamed for the state of the economy whether it was their fault or not.

    Things always continue…until they don’t.

    If they blow it, the Republicans will become a regional party representing the Confederacy a little sooner than expected.

  20. An Interested Party says:

    Historically, presidents have always been blamed for the state of the economy whether it was their fault or not.

    Umm, the question was about the debt ceiling deal, not the state of the economy…

  21. mattb says:

    Historically, presidents have always been blamed for the state of the economy whether it was their fault or not.

    Correct. Except, this is a case where the opposition party has turned what was typically a procedural vote into a symbolic/existential moment that everyone is paying attention to. Further, many of those representatives are saying “nothing will happen if we don’t vote to raise it” and “even if you give into all of our demands, we still may not raise it.”

    This is akin to the Government Shutdown under Clinton — though this might actually have further reaching consequences. We all know how that played out historically. There’s little reason to suspect the same won’t happen here — which is one of the reasons why I doubt that it will be the dems who blink this time around.

  22. john personna says:

    I thought we did away with this Erlichean nonsense.

    Yeah Steve, since Erlich lost his bet we will, ipso facto, never run out of anything.

  23. Ron Beasley says:

    @john personna: Thanks John, I didn’t know how to respond to that and in fact had forgotten all about Erlich and had to Goggle him. There are some who just refuse to believe we have finite resources and won’t until they are gone.

  24. john personna says:

    No problem Ron. For what it’s worth, I think the resources thing is a slow burn, with decades defining the curves, but there is no doubt they are there in the background.

    I was surprised to learn that as the copper age began, metallic copper was just laying there on the ground around the Med to be picked up an hammered out. It wasn’t there as written history really got going, because it had all been picked up, etc. Flash forward to the 20th century and the world’s deepest copper mines.

    The problem with the Erlich bet was that it was too condensed, but on the other hand it did show that over short time scales it is a sucker bet what’s really going to happen with prices.

  25. Jay says:

    @MM:

    The debt ceiling limit was a clean vote in the past because Congress and the President worked out, planned, debated and you know..

    ..passed budgets.

  26. Jay says:

    @Ben Wolf:

    Yes because in the past whenever there has been tax increases, the Democrats followed through with their promised spending cuts.

    I have this bridge in Brooklyn for sale if you’re interested. Comes real cheap. I promise if you pay today, I’ll give you all the paperwork necessary on Monday.

  27. john personna says:

    Jay, I’m pretty sure you are whining.

    You wouldn’t do that if you had votes in congress for the kind of budget you want.

    Of course even when Republicans controlled the Presidency, and the Senate, and the House, they DIDN’T produce the kind of budget you are talking about.

    Go ahead, whine that it’s not fair to talk about Bush budgets anymore ….

  28. Ron Beasley says:

    @john personna: Many resources will simply become too expensive before they run out. Oil of course may be the best example of that and sooner than many think. I am amused at all the talk about oil reserves in the Arctic – $300 bbl just to get it out of the ground. Too expensive for transportation. I was amazed to see recently that a majority of Americans thought that dilitium crystals of Star Trek fame were the best solution to our energy problems.

  29. Tlaloc says:

    Second, during the 1995 shutdown, Clinton’s popularity went down during this time — although this fact seemingly cannot penetrate the conventional wisdom. See my earlier post. Yes, the polls also weren’t kind to Gingrich and the GOP, but it is hard to claim that Clinton benefited in the eyes of voters. There is certainly no evidence that I know of that the shutdown helped re-elect Bill Clinton.

    Sides seems to be unfamiliar with the concept of a zero sum game. If the left loses but the right loses more then the left wins because our system only allows for two parties. It’s a stupid system and we’d be a lot better off without it but there it is. Clinton, after all, won reelection in 1996 by 9%. So while we may not have evidence that the shutdown re-elected him we know for damn sure it didn’t cause him to lose.

  30. Dave Schuler says:

    I was surprised to learn that as the copper age began, metallic copper was just laying there on the ground around the Med to be picked up an hammered out.

    Not only that but about 8,000 years ago obsidian had started to play out. The easily found deposits had already been used. Obsidian was widely traded all over the ancient world. They’ve mapped the trade routes based on the composition and location of the obsidian tools they’ve found. Whodathunk that copper, then bronze, then iron, then steel could have replaced it?

  31. An Interested Party says:

    The debt ceiling limit was a clean vote in the past because Congress and the President worked out, planned, debated and you know.. members of one of the major political parties didn’t hold the whole process hostage so they could force their own preferences regarding the budget…

    Happy to be of help…

  32. Pete says:

    @ponce: If they blow it, the Republicans will become a regional party representing the Confederacy a little sooner than expected.

    Since most productive people are moving south, the small regional party to which you refer will quickly become a majority after two or three more decades. California will resemble Detroit and New York will apply to become a suburb of Washington, DC. Of course, that depends on whether the Fed has completely sold this country off to Wall Street.

  33. ponce says:

    Since most productive people are moving south, the small regional party to which you refer will quickly become a majority after two or three more decades.

    I take it you’ve never been to the South, Pete.

    Not a while lot of modern companies down there.

    It’s mostly primitive mineral extraction and government supported farming.

  34. Polaris says:

    You can’t compare 1995 to today. The fact is that the economy was booming after a very mild recession in 1991-2 and President Clinton benefited as all sitting Potus do during good times. That is not true today. Yes Clinton got reelected but it wasn’t because he faced down Gingrich. It was because economic times were good and he was in office to benefit. Simple as that.

    -Polaris

  35. ponce says:

    Oooopppps, wait a minute, they own most of our debt and if we default treasuries will instantaneously convert to junk bond status…

    I’m sure China would be quite happy to exchange a little equity in the trillion or so dollars worth of U.S. securities they hold if it means the U.S. economy is…discredited.

  36. Rick DeMent says:

    @Jay:

    Yeah … from 2009 to 2011 the GOP was willing to bring everything the majority in the Senate wanted to a floor vote. That’s how I remember it too.