With both the 14th Amendment and platinum coin options to defuse a debt-limit crisis (apparently) off the table, only two possible outcomes are left: a debt- ceiling increase or the government's missing required payments and economic chaos ensuing. This is exactly the choice President Barack Obama laid out in his news conference this morning.
Politico reported today that top Republican staff members believe “more than half” their conference is prepared to push the government into default on some payments rather than cave on their demands for further spending cuts.
This isn’t because Republicans are reckless, as such. Many conservatives are sincerely convinced that excessive government spending poses a dire risk to the U.S. economy, and that even if missed payments have severe negative short-term economic consequences, they will be worth it if the long-term outcome is a smaller government.
The conviction that everything is about to come apart in the U.S. if the government maintains its current economic-policy course -- through tremendous inflation, a debt crisis, and/or all of the productive members of society Going Galt -- animates the huge Republican resistance to anything Obama proposes, even if that’s just the government paying the bills it has already run up. They’re trying their very hardest to save the country from a madman.
This sincere outlook is also insane, as you can see from how the stock and bond markets have behaved in recent years in response to various policy actions. The markets like fiscal expansion, monetary expansion and deals that keep the government operating as usual without drastic policy change. They do not cry out for massive disruption in pursuit of smaller government.
But the conservative worldview is robust because of its imperviousness to evidence. Economic data, like polling data or climate data, cannot get in the way of the narrative. Conservatives are sure that the Obama presidency will lead to an economic calamity, and they will prove it, if necessary.
Mike Konczal of the Roosevelt Institute has a good rundown of the game theoretical implications of the White House’s choices to take the coin and the 14th Amendment off the table. By removing the options to hit the debt ceiling without economic disaster, maybe the White House will force Republicans to give the White House the policy it most wants: a clean debt-ceiling increase. Or maybe we’ll hit the debt ceiling anyway.
But there is another explanation for the White House’s choice that is missing from Konczal’s analysis. If Obama had minted the coin, he would have taken the blame for whatever problems ensued, real or imagined. He might have saved the economy while bearing the political cost of ruining it. Foreclosing that option has an indeterminate impact on the economy, but it will ensure that Republicans get all the blame for whatever bad economic events happen in the next few months.
By creating an object lesson of how unfit the Republican Party has become to govern, Obama can ensure himself a political “win.” But with a new recession sparked by a government payments crisis, the country would lose -- and Obama, whose second-term plans would be hampered by the need to manage yet another recovery, would lose, too.
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