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Do Americans Care About the Debt Ceiling?--Skeel

The debt ceiling drama increasingly seems like two debates rolled into one. The first is the deficit reduction debate, and the question of what package of spending cuts and/or tax increases lawmakers should agree to. The second is whether we can risk reaching an impasse and failing to raise the debt limit by August 2. 

Americans seem much more engaged in the first debate than in the second. We’re told that the failure to raise the debt limit would trigger a worldwide financial crisis, but people seem remarkably unconcerned. Perhaps this is because the numbers are too big and the issues too abstract for ordinary citizens to understand. But I don’t think so. I suspect the disinterest is a legacy of the pattern of bailouts throughout the recent financial crisis, and the manipulation of the rule of law that accompanied them.   We now assume that warnings of financial Armageddon are always premature; there’s always an escape hatch.
 
If this is correct, the recent suggestion that the president might simply declare the debt ceiling unconstitutional, based on the 14th Amendment’s statement that “the validity of the public debt of the United States, authorized by law ... shall not be questioned,” is especially pernicious. It underscores the perception that no crisis is real, and that the rules can always be manipulated to make a problem go away. There’s a vicious cycle here. The inability to persuade Americans that a crisis is serious may make it less likely that Congress will agree on a solution, and create even more pressure to sidestep this problem by bending the rules.
 
This is a dangerous game. It may not be August 2-- or whenever Harold Camping predicts the new end of the world will come. But one of these times the habit of repeatedly crying wolf is going to bite us.
 

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Comments ( 1 )

David: my general sense it that it's partially the "boy who cried wolf" problem you identify and that it's partially a "bargaining in the shadow of the consequences of default" issue. I think most folks are well aware of the potentially disastrous consequences (both political and real) of a U.S. default; they therefore assume that the relevant parties will reach a deal in advance of the deadline. Backward induction is a pretty powerful tool when the stakes are so high and the incentives so clear.

Though not many outside my little niche would describe it so, I think many people intuitively understand that the current impasse is all about bargaining on the Pareto compromise frontier, and that neither the White House, nor House Republicans, nor anyone else in the game is ultimately going to be willing to take the political risks associated with any real risk of default in early August. They're just fighting over a well-defined pie with the understanding that it all disappears in a couple of weeks if they can't get things done.

On the other hand, the deficit reduction debate does not seem to me to have a well-defined Pareto frontier along which the relevant parties are negotiating. Nor can we assuage our own concerns there by telling ourselves that the relevant actors face strong incentives to work it out quickly.

As for which explanation has more power, I guess the proof of the pudding will be in the tasting to some degree, but even then, I'd be loathe to see "bending the rules" as proof positive of the bailout/manipulation legacy. This is in part because at least some of the "rule bending" to which folks seem to be referring is very much of the "temporary fix" variety; there are in my view several possible "rule bending" solutions that would do real work for hard-core deficit hawks by temporarily decoupling the deficit reduction debate from the debt ceiling debate.

Put another way, it seems plausible that (1) we don't absolutely NEED a "big" debt ceiling deal right this minute; and (2) we're almost certainly going to get some sort of debt ceiling compromise in the next few days. I think it is normatively defensible for deficit hawks to focus primarily on the structural problem, and to fight hard there while deliberately and strategically demonstrating relative disinterest over the debt ceiling debate. If I'm a true deficit hawk, I want to send a very strong signal that my issues are not on the table as part of a game of Chicken that will have to be resolved one way or the other within the next two weeks. If we use "rule bending" to paper over the debt-ceiling issue long-term, that's a much bigger concern.

Paul