Throwing out the wheel on the debt ceiling
The uncertainty surrounding the “fiscal cliff” has ended only to be replaced by uncertainty surrounding the next round of “debt ceiling” negotiations. While going off the fiscal cliff would have hurt the American economy, failing to raise the debt ceiling would absolutely destroy the American economy. Yet many Republicans, including “respectable” ones like Lindsay Graham, have already announced that they would be willing to do just that if the Obama administration fails to enact their preferred version of spending cuts. What’s President Obama to do?
First, a little history. Before 1917, Congress had to sign off on each individual loan every time the Treasury Department borrowed money – a system that worked during simpler times when the government was less involved in the economy. During the First World War, however, when the Treasury needed to borrow much larger sums of money, Congress gave the Treasury the authority to sign off on individual loans itself with Congress simply setting a collective limit on the amount of these loans. Thus, ironically, the debt ceiling came into being as a way of enabling government borrowing rather than restricting it.
What many voters and, I suspect, a few Representatives, do not understand is that approving the debt ceiling is a process completely divorced from decisions about budgeting. The debt ceiling has been a simple procedural matter over the years, akin to signing checks for someone after already agreeing to the contract for their services. It was a simple matter that is until 2011, when someone in the Republican Party figured out that the threat of ruining the American economy by refusing to pay for items that had been previously budgeted could be used as political leverage against the President.
While many Republicans might rejoice in their new-found political tool, the use of the debt ceiling as a political weapon is bad for all of us. Now that the genie is out of the bottle, the majority in the House can, and will, make the same threats and demands on a regular basis, creating a perpetual state of uncertainty about the “full faith and credit” of the US government while empowering one branch of Congress with indefinite, disproportional influence over future budgets.
The only way to stop the future use of the debt ceiling as a weapon is for the President to go eyeball to eyeball with House Republicans and hope they blink. He needs to stick by his recent pronouncements that the debt ceiling is not negotiable and trust, just as the US did during the Cold War, that the other side was rational enough not to launch an attack that would result in Mutual Assured Destruction.
One of the analogies used for disputes between the US and former Soviet Union involved the game of chicken. Game theorists argued that because mutual accommodation was rarely the best outcome for both sides and escalation to nuclear war inconceivable, that the outcome (the “Nash equilibrium”) of chicken played between two rational actors could usually be expected to result in one side “swerving” and the other side winning.
How then, does one side best make sure that it is the winner in a game of chicken and not the one on the side of the road? Well, extending the analogy further, advocates of strong deterrence in the Cold War suggested that the best way to win the nuclear “game” was for a player to throw his or her steering wheel out the window. In other words, once your opponent knows that you have taken the option of swerving off the table for yourself, they have no choice but to be the ones to do so because the alternative is much worse.
President Obama’s recent statements that he is unwilling to negotiate on the debt ceiling are intended to demonstrate to Republicans that he has no intention on swerving. He should make such pronouncements as frequently and strongly to the point at which it is clear that he cannot back down politically. He needs to throw out the steering wheel and hope the other side acts rationally. If we could trust that the Soviet leadership was rational enough not to destroy our country, surely we can trust Republicans in Congress not to push the button.