Will the Democrats Unilaterally Disarm on the Debt Ceiling in the Name of Being “Normal”?

Posted in: Tax and Economics

If we reach the point where the debt ceiling becomes binding, possibly as soon as next week, President Joe Biden will have exactly two options: (1) Continue to pay the nation’s bills, or (2) Fail to pay the nation’s bills for the first time ever. If he goes with the first option, he will violate the debt ceiling; but if he goes with the second, he will violate the appropriations laws.

No matter which choice Biden makes, it will be unprecedented, destabilizing, and risky. There will be no “normal” way to proceed, because we have never been in that situation before. Either choice is going to shake the foundations of the country, because Republicans have decided to put the President in an impossible situation. That is the reality. When a radicalized political faction throws out all convention, then only unconventional responses remain, whether Biden and his advisors like it or not.

After his first fatefully unwise decision to negotiate with Republicans over the debt ceiling in 2011, President Barack Obama realized that the smart response to subsequent attempts at hostage-taking was to refuse to engage with his radically irresponsible opponents. Republicans ultimately blinked each time, meaning that there was never a moment when Obama had to answer the question: What will the President do if Republicans, whether deliberately or by sheer incompetence, fail to approve a debt ceiling increase before disaster strikes?

We are now, it seems, very likely to find out what President Joe Biden will do in that situation, because Republicans are both more ideologically extreme and less politically competent than they were in the 2010s. Now that it is more important than ever for the President to understand that there are no risk-free options, however, both the White House and even some liberal pundits seem to be in the midst of convincing themselves that the President’s worst available move—consciously choosing to allow the nation to go into default—can somehow be viewed as the centrist and cautious path forward. How is that happening?

Yesterday, Professor Michael Dorf and I wrote here on Verdict that President Biden’s fundamental tendency toward caution and centrism were leading the White House astray, causing the President to offer weak excuses for refusing to recognize that the debt ceiling law is unconstitutional. We acknowledged that those public statements might not betray as much weakness as it might seem, however, because the strategy from the Oval Office is clearly to put pressure on the Republicans to buckle. The Democrats’ chosen strategy is based on convincing people that there are no “easy outs,” as they would describe it, hoping to win the battle of political optics by making Republicans the guilty party if they do not agree to raise the debt ceiling.

It is worrying, however, that some Democrats seem to be high on their own supply, starting to believe the hype about how they can come out of this with blame placed squarely on Republicans. Not only is that unlikely to be possible no matter what they do, but the White House is showing signs of going into a defensive crouch, hoping against hope that seeming to be “reasonable” will carry the day.

If that is what they are thinking, they are wrong. Allowing the country to default on any obligations, even for a day, will break something that can never be put back together. Yes, there are political risks in every direction, but imagining that there is some version of normality that will give the Biden administration political cover is wishful thinking. The Democrats’ usual retreat into timidity has no place here, because every decision available is both fateful and bold. Imagining otherwise can only lead to disaster.

The analysis below is worth thinking through, but I will be clear up front: Anyone who tells President Biden that the so-called constitutional workarounds to nullify the debt ceiling are worse than allowing default is wrong. Such advice is bad legal analysis and worse politics.

The “But It Won’t Work” Dodge: Why Take an Unserious Argument Seriously?

Ezra Klein, a columnist for The New York Times, is identifiably liberal (but not leftist), and I cannot recall a time when he has been a fainthearted voice of false restraint. If there is a first time for everything, Klein chose the worst possible moment to imagine that the inside-the-Beltway “we don’t dare” consensus among some Democrats is the right way to respond to an unprecedented crisis. As I will explain, he offers not so much bad analysis as partial truths, ignoring the larger picture and using his very prominent position in the punditocracy to appeal to President Biden’s almost primal instinct to try to be seen as doing nothing out of the norm.

Two days ago, Klein published “Liberals Are Persuading Themselves of a Debt Ceiling Plan That Won’t Work.” Here, “won’t work” ends up meaning “would eventually be rejected by five Republican appointments to the Supreme Court.” As I will explain at the end of this column, Klein is likely wrong about even that, but what matters more in the current situation is that his otherwise admirable predisposition to give the other side the benefit of the doubt causes him to misunderstand Republicans’ arguments and to imagine that giving into those arguments would allow Democrats to come out of an avoidable disaster with the Republicans taking the blame. If only.

As has become all too typical during this go-round of the debt ceiling circus, Klein focuses only on “two more unconventional tactics [that] are proving particularly popular in the liberal imagination.” He thus not only ignores the simple fact that the President will have no constitutional options if the debt ceiling is not increased, but he also falls into the trap of contrasting “unconventional” ideas with … with what, exactly? He never says so explicitly, but his advice boils down to having the Democrats agree to destroy the full faith and credit of the United States, apparently in order to avoid the dreaded fate of being deemed unconventional—the worst fate that some pundits can imagine for a Democrat.

The two tactics that Klein discusses are what has become known as the Fourteenth Amendment option and the platinum coin gambit. He appropriately dispenses with the latter in only a few words, but it is worth taking a moment to consider his dismissal of the Fourteenth Amendment argument. His misanalysis is quite enlightening.

Last week, I wrote a column here on Verdict in which I ridiculed a recent guest op-ed in The Times by a conservative professor named Michael McConnell, who set up one of the most transparently weak strawman arguments that I have ever seen. McConnell, who has done no serious research or scholarly writing about the debt ceiling, relied only on what would seem to be his visceral belief that the Fourteenth Amendment cannot possibly be allowed to undermine his political party’s strategy of using the debt ceiling to impose pain on the poorest and most vulnerable Americans.

Klein, however, has never shown any inclination to go along with that political agenda. Even so, he approvingly cites McConnell’s claim that the relevant sentence in the Fourteenth Amendment—that “[t]he validity of the public debt of the United States, authorized by law … shall not be questioned”—is irrelevant to our situation today. Klein quotes McConnell’s howler in full:

For the United States to fail to pay interest or principal on its debt would be financially catastrophic, but it would not affect the validity of the debt. When borrowers fail to make payments on lawfully incurred debt, this does not question the validity of those debts; their debts are just as valid as before. The borrowers are just in default.

In my Verdict column last Thursday, I specifically called out that assertion for its utter incoherence, noting that McConnell’s argument would have us believe that people’s proper “response to non-payment … is not to question whether the promise on which we relied is valid. After all, the promise—which has already been breached—has not been explicitly retracted.” That kind of sophistry is beyond absurd, because it does nothing more than redefine the word “questioned” to mean “legally repudiated.” Even the most committed textualist should find that laughable.

To be fair, Klein frames that discussion as a matter of asking what three arch-conservative Supreme Court justices—John Roberts, Brett Kavanaugh, and Neil Gorsuch—might be convinced to endorse, and he notes later in the essay that this Supreme Court has shown us that once-nutty arguments are no longer off the table.

Even so, when Klein turns his attention to the second argument, this is his transition sentence: “The coin gambit is similarly easy to poke holes in if one wants to.” But McConnell did not poke holes in the Fourteenth Amendment argument, easily or otherwise. If Klein’s claim is that this Court might do the Republicans’ bidding, then I readily agree. But if they do so by adopting McConnell’s argument, it will not be because it is easy to poke holes in the Fourteenth Amendment argument, but instead because they simply want to rule against the President. Klein should not assert or even imply otherwise, especially given how embarrassingly weak McConnell’s argument is.

What Does “Normal” Mean? There Will Be No Safe Haven from this Storm

Why does any of that matter? Klein’s ultimate message is that, if the Republicans never agree to increase the debt ceiling, President Biden will lose politically if he does anything that the courts might ultimately strike down. He writes that “[t] he strength of the Biden administration’s political position is that it stands for normalcy. … But if the administration declares the debt ceiling unconstitutional, only to have the Supreme Court declare the maneuver unconstitutional, then Biden owns the market chaos that would follow.” Klein then argues that the Republicans would win politically by painting Biden as having refused to do what is traditional (negotiating over the budget), whereas Biden would have done something weird and then been brought low by the Supreme Court.

To be clear, where does that analysis leave Biden? In Klein’s telling, Biden must either capitulate to extortion or allow the country to become a deadbeat nation—because that is normal, one can only guess?

But what this ignores is that there will most definitely be market chaos if the President does what Klein says that he must do. The reason that people who understand economics have been so worried about this entire situation is that the conventional advice that Klein endorses is simply unthinkable. The country’s unquestioned creditworthiness underlies much of our prosperity, and there is a world of difference between “never failed to pay its obligations, in full and on time,” and “stiffed people for billions of dollars this week, and no one seems to know how to stop the madness.”

Aha, Klein might respond, but Republicans would own that chaos! After all, Biden was a well-behaved little boy and passed up unconventional options, while Republicans would clearly be at fault in the public’s mind. He ends his essay with this bit of naivete:

Right now the positions are clear. The White House is open to budget negotiations but opposed to debt ceiling brinkmanship. Republicans are the ones threatening default if their demands are not met. They are pulling the pin on this grenade, in full view of the American people. Biden should think carefully before taking the risk of snatching it out of their hands and holding it himself.

Again, in all the years that I have been reading his work, I have never found myself disagreeing with Klein in any significant way. This, however, is simply jaw dropping. Republicans, after all, will blithely say that they did not pull the pin on the grenade, or that Biden forced them to do so, or something. They will point out that they passed a bill in the House, and all the President had to do was get Senate Democrats to pass it and send it to his desk for the presidential signature.

Would people fall for that? Well, Klein fell for McConnell’s whopper of a strawman argument, and Klein is much savvier than most Americans. At best, the public would view it all as more of the same bipartisan bickering, and Republicans would accurately say that Biden turned down their offer. Who looks unreasonable in that situation?

The answer, one would hope, is that people would not be so naïve, seeing the truth that the Republicans did something unprecedented and destroyed the economy. Klein seems to imagine that everyone will see the grenade and the Republicans’ collective finger pulling the pin, with the political fallout inevitably harming the party that would truly be at fault.

That, however, ignores recent history. When Obama became President, congressional Republicans openly and repeatedly did everything possible to prevent the economy from recovering from the Great Recession. Did they pay the price? No, they retook the House in 2010 and the Senate in 2014, losing narrowly to a gifted incumbent in the election in between. Their key message was simple: the economy is weak, and a Democrat is in the White House, so everyone should blame him.

For heaven’s sake, when the Republicans shut down the government during the Obama years, a Republican congressman made news by getting angry at a Park Service employee who told him that a national memorial was closed! That might seem transparently silly, and it is to people who follow the news, but the iron law of politics is always the same: the “in” party loses when the economy is weak. The Republicans taught us all that lesson a decade ago, and they have no qualms about the pain that they will cause if they harm Americans in order to make Biden less popular.

The Impeachment Trap

In fact, even if Biden were to follow Klein’s advice and allow the government to default on legally required payments, the Republicans would be very likely to blame him for violating the law. And they will not be wrong in the immediate sense, because what Professor Dorf and I call the trilemma is an impossible situation for a President precisely because he would have to violate at least one law. For the last decade, I have been referring to this as an “impeachment trap,” because Republicans can honestly say that the President has violated his oath of office by failing to obey one law or another.

President Biden’s obvious response would of course be: “But you made me do it!” Would that stop the Republicans from simply ignoring their past actions and instead repeating ad nauseam that “Biden broke the law”? Senate Republicans spent all of 2016 stealing a Supreme Court seat by endlessly repeating something that was not even true (that “the people” should decide who would fill the seat, even though the President who had won the previous election held that constitutional power), so what would stop them from gleefully saying that the economic chaos is all Biden’s fault and that he broke the law to boot?

Speaking of the Supreme Court, one must also question whether it would even intervene, much less whether it would rule against the White House, as Klein presumes it would. If the President followed the Buchanan-Dorf advice, or even the Fourteenth Amendment strategy, the Court could only invalidate his decision ex-post. That, however, would require the Court to say that the President cannot pay the bills that he tried to pay. If the Democrats are looking to win a blame game, I would suggest that they would be in a much stronger position by forcing the Court to make the fateful decision to order the President not to pay the nation’s bills. Default would be on their hands, and a Court worried about its sinking public approval would see that.

Again, however, there is no doubt that Biden will be in an impossibly difficult situation if (as seems all too likely) this all goes wrong early next month. There is no safe space for Biden to hide, no conventional alternative in an unprecedented situation where there are only unconventional choices.

The President should state his position bluntly: “The Republicans tried to get me to refuse to pay American citizens and businesses the money that we owe them. I will never do that.” The markets will go into a tizzy no matter what he does, and he will win no fans by trying to look normal in the most abnormal of times. President Biden should ignore the people who are telling him that being Scrooge is the path to political salvation.

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