The Debt Ceiling negotiations have been a bumpy ride so far. That was to be expected. As such, it was something press should have been telling us to expect all along. But, as is all too typical of them, the press coverage of the current negotiations has been terrible.
This is bad for all of us because public opinion has a lot to do with how things turn out. And, as is unfortunately the norm, the Republicans are winning the messaging war. This is only partly due to ineptitude on the part of Democrats in general and the Biden Administration in particular. The rest is on the press, which should know better by now.
It's not like we haven't gone through all of this before. I was blogging in 2011 when we last went down this road and I posted extensively about this subject. Here's a good starting point: Sigma 5: Debt Ceiling Negotiations. Then as now bad press coverage contributed to a bad outcome.
Rather than pointing out from the get-go that the whole thing was a crass political ploy on the part of Republicans, the press engaged in a lot of both-sides-ism. Toward the end they did come around to some extent and start assigning most of the blame to the GOP. But by then a lot of damage had already been done.
In 2011 we were slowly coming out of the recession caused by the crash of '08. High government spending would have sped up the recovery. But the deal the Obama Administration was forced into by Republicans resulted in a contraction in Federal spending. That slowed the rate of recovery unnecessarily.
But let's go back to the beginning. Where did the Debt Ceiling come from? I only recently learned the answer to that question. It was put in place for the first time in 1917 in the run-up to U.S. entry into World War I. Before that, we got along just fine without one.
At that time, however, the Federal Government was looking at the need to issue a large number of bonds. They would be used to finance our part in the War effort. A big increase in the Debt was a concern, and not just to fiscal conservatives. In an effort to mollify the opposition "Debt Ceiling" legislation was put through. The legislation required Congress to approve future increases in the national debt. The legislation was nicknamed the "Debt Ceiling", or equivalently the "Debt Limit".
It turned out that nobody cared. No votes were changed by the institution of a Debt Ceiling. Fortunately, the government had no trouble authorizing and selling the bonds. And the U.S. participation in World War I ended up being relatively modest, so funding our participation never became a big political issue. But the Debt Ceiling remained a part of U.S. law.
And it's still there. Efforts to get rid of it have so far fallen short. Voting to repeal it makes one an easy target for accusations of being a spendthrift or worse. On the other hand, for a long time no one found a reason to screw things up by holding up the routine increasing of the Ceiling. So, for decades it was quietly increased as a matter of routine housekeeping. That all changed in 2011.
Republicans have long labeled Democrats as the "irresponsible tax and spend" party. I have looked at history and done the math. It is the Republicans who are the spendthrifts and the Democrats who are fiscally responsible party. But GOP messaging has been very effective, so people believe the opposite.
And in 2010 Republican operatives ginned up the "TEA Party". TEA stood for "Taxed Enough Already". A number of well-funded stealth operations created a completely phony "ground swell of support from the grass roots" for the TEA Party movement. This was a good investment because it provided the political cover necessary for Republicans to be able to get away with opposing a routine increase in the Debt Ceiling when it came up in 2011.
Republican refusal to go along was supposedly based on the opposition arising "spontaneously" from the grass roots. And by "grass roots" they meant the very TEA Party organizations they had carefully constructed. The press covered the TEA Party as if it was a legitimate grass roots movement and not a construct supported and nurtured by rich and powerful interests closely aligned with GOP leadership.
The very first TEA Party organizers actually were ordinary people who were genuinely concerned about the size of the Federal Debt. But the GOP establishment quickly recognized the opportunity these people represented. They poured large amounts of money and professional organizational skill into turning a few scattered groups into a large organization with a national reach.
So, the TEA Party was the opposite of a spontaneous grass-roots movement. But the press didn't get around to noticing this until several years later. That's when the money spigot got turned off. As soon as that happened the whole movement quickly fell apart.
The press also ignored the history dating all the way back to the Reagan Administration of the GOP blowing up the deficit and then leaving it to Democrats to clean up the mess. By 2011 that left Democrats and the Obama Administration in a week position. They felt they had an obligation to not blow the economy up, something the other side seemed perfectly willing to do. The result was a deal that hurt the U.S. economy for a decade.
And now we're back at it in 2023. The press coverage is still bad. Republicans have been able to hold on to their completely unjustified reputation for fiscal probity. And that has put Democrats and the Biden Administration back into a weak bargaining position.
And then there is this. The negotiations are going exactly like I (and anyone who was paying attention in 2011) have expected. But that hasn't stopped the press, who never seem to learn, from engaging in their usual penchant for breathlessly covering any small twist or turn as if it actually meant anything. It is too soon for anything meaningful to be happening.
By now they should understand how negotiations work. But, if they do, this understanding is not affecting their coverage. Negotiations are also a subject I know a thing or two about. Here's a primer on the subject that I put together all the way back in 2010: Sigma 5: Negotiation 101. For those that don't feel the need for a refresher, let me cut to the chase. These things always go down to the last possible second. Why?
Imagine two parties who are in opposition engaging in a negotiation. More for one side means less for the other side. Now let's say that the negotiators put together a deal well before the deadline. What happens? One or both sides become angry. Whether it is true or not some of the parties on one or both sides of the negotiation that were not directly involved in the negotiation come to believe that if their side had held out longer, they would have gotten a better deal.
Deals have to be sold to all parties, not just the ones present at the negotiations. Both sets of negotiators have to be able to go back to their people and credibly be able to say, "we got the best deal possible". Going into a negotiation both sides usually ask for the moon. Inevitably they will have to make concessions in order to craft the final deal.
The idea is to make the fewest concessions possible. If negotiations go to the last minute, or even past the "deadline", then it bolsters the case that each side got the best deal possible. So, in contentious situations, negotiations ALWAYS go to the last minute. The template for this is the 2011 Debt Ceiling negotiations. They went down to the very last minute.
In this context, "deadlines" are extremely useful. This often results in artificial deadlines being manufactured. The question is not whether the deadline is manufactured or real. The question is whether the deadline is credible.
We see this all the time in labor contracts. The "deadline" is often the expiration of the previous contract. But I have seen union members work without a contract for many years. In these cases, the end of the old contract "deadline" was both artificial and not credible. Things often change when workers go out on strike. But if employers can keep operating while workers are striking then this too can turn into an artificial deadline.
Strikes often take time before they start to inflict real pain on management. The current Writer's Strike in the movie/TV business is a good example. A finished script may be produced well before the project (movie or TV show) is ready to be aired. So, not much gets held up for those first few days or weeks. But over time more gets held up and the cost of those delays start piling up. The last Writer's Strike took 100 days to settle. This one is likely to last that long or longer.
And that brings us back to the Debt Ceiling negotiations. We passed one artificial deadline a couple of months ago. That's when we actually reached the Debt Ceiling. It was not a credible deadline because we have been there before. We reached the Debt Ceiling well before the impasse was broken in 2011. But the Treasury Department employed "Extraordinary Measures" to keep things working, at least for a while.
It was not until the Treasury announced that they had reached the end of their Extraordinary Measures in 2011 that a deal was made. In 2011 this "Extraordinary Measures" business was new because no one had played fast and loose with the Debt Ceiling before. People had made symbolic gestures, but only because they knew the symbolic gestures would fail.
In 2011 the important players in Congress and the Administration knew that something like what was eventually labeled "Extraordinary Measures" were possible. And after 2011, so did anyone who was paying attention. This time around the press did take Extraordinary Measures into account.
There was little coverage when we hit the actual Debt Ceiling. When they did start covering the issue in May, however, they went with their usual "why isn't a deal being made right now" approach. It is as if they had never seen a contentious negotiation before.
Treasury Secretary Yellen announced weeks ago that her department would likely run out of Extraordinary Measures on or about June 1. Since then, June 1 has become more and more firm. The process is complicated so the Department will not know it has hit the limit until the last minute. But it is going to be very close to the end of the business day on June 1.
And the whole argument about whether or not to raise the Debt Ceiling has always been ridiculous. Congree passes legislation that creates revenue, mostly in the form of taxes. All of this revenue is strictly controlled by laws which are subject to review by the courts. All expenses are strictly controlled by "Appropriations" bills passed by Congress and also subject to review by the courts. So, the size of the deficit is completely determined by the details of the legislation Congress passes.
If Congress is unhappy with the size of the deficit, then all it has to do is revise the tax code or modify the contents of various appropriations bills. Do that and the problem will be solved. This too the press could and should note but doesn't bother to. So, the only real purpose the Debt Ceiling law fulfils is to provide one side with a lever it can use to try to squeeze concessions out of the other side.
But to what end? There are other, more direct means of achieving the result they claim to be aiming for. As I noted above, if the deficit is too large either raise taxes or cut spending. But republicans don't actually want to do either. They want Democrats to do it for them.
That way they can blame Democrats for the tax increase or spending cut. When they are in control, they cut taxes and increase spending. Both are popular. Both are also irresponsible when done together. The combination blows the deficit up, something they pretend to care deeply about. That is, when a Democrat is in the White House. Just not enough to raise taxes, close loopholes, or reduce spending on popular programs.
And certainly not when a Republican is in the White House. Every instance of Debt Ceiling hostage taking that I know of involves Republicans doing it to a Democratic President. Democrats do not reciprocate. As a recent example, the Debt Ceiling was raised three times during the Trump Administration without any problems. The deficit and the National Debt also ballooned wildly under Republican President Trump.
And there are at least two ways to legally get around the Debt Ceiling law. There was a lot of discussion about one of them in 2011. If the U.S. Mint makes a coin, then the value of the coin counts as revenue. So, every time the Mint makes a quarter the national debt goes down by twenty-five cents. That's not much.
But it turns out that the Mint doesn't have to consult Congress when it decides which denominations they produce, nor how many of each they make. So, at the request of the Administration, the Mint could decide to make a Trillion Dollar coin, presumably in Platinum. President Obama said he wouldn't do it. But, if the Biden Administration were to mint thirty-two or more Trillion Dollar coins, the entire National Debt would be wiped out instantly.
The other option was a new one on me when I recently heard about it for the first time. Section Four of the Fourteenth Amendment to the U.S. Constitution reads:
The validity of the public debt of the United States, authorized by law, including debts incurred for payments and bounties for services rendered is suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
There is a lot of verbiage in this section dealing with issues arising out of the Civil War. It validated the Civil War debt run up by the North and repudiated the similar debt run up by the South (and denied compensation to slave owners for the value of freed slaves).
If we slice away all the Civil War stuff we end up with, "The validity of public debt of the United States, authorized by law, shall not be questioned". The Debt Ceiling law has the effect of questioning of the validity of the public debt. That is not allowed by the plain language of section Four of the Fourteenth Amendment.
Any law which contradicts the Constitution is unconstitutional, so the Debt Ceiling law is unconstitutional. So, President Biden has the option of minting Trillion Dollar coins and/or of declaring that the Debt Ceiling law can be ignored because it is unconstitutional. So far, he was said he will not exercise either option.
Joe Biden is an institutionalist. In part, that is a result of him having served in the U.S. Senate for 36 years. He respects the way things are supposed to be done and what role each the various branches of the government are supposed to undertake. As such, he sees it as the job of Congress to deal responsibly with the Debt Ceiling. He keeps hoping that they will do so. But the current batch of House Republicans seem disinclined to do so.
But at the time I am writing this we still have a few days. The various parties have time to come to a deal and implement it. If I were President Biden, I would have left both options on the table. Both can be used as bargaining chips in trying to get a decent deal. He has chosen not to do this, at least not publicly. Again, that is in his nature. He wants to preserve things, not blow them up.
But he is free to exercise the 14th Amendment option at any time. All he would need to do is to get the Office of Legal Council (a part of the Whie House operation) to issue an opinion. He can have them do that at any time. Then he can wait until the stroke of midnight to publish it. Attached to it would be an order to the Treasury Department to resume business-as-usual. Crisis averted.
Until, of course, someone sues. But by the time the Supreme Court rendered a final decision on the case, assuming it went against the President, and the current composition of the U.S. Supreme Court makes anything possible; the consequences would be truly catastrophic.
Even if the courts moved expeditiously, by that time final judgement came down the Federal Government would have blown a long way past the current Debt Ceiling. At that point the only remedy that would be effective and could be quickly implemented would be to raise the Ceiling immediately. And, of course, the Court should be of the opinion that the Debt Ceiling law is unconstitutional. If they did then the problem would be eliminated permanently.
Exercising the 14th Amendment option puts us on a path that is fraught with danger. That's one reason it is not the scenario that most people expect to see. And selecting the "minting coins" option is even less likely happen. Most people, including myself, expect Biden to cave to Republican demands.
But that assumes that Republicans have a coherent set of demands, and that caving to them will be enough to get the Debt Ceiling raised. The problem is that it is unclear what those demands are. (This is another area where the press has fallen down on the job.)
There may never be a single "deal" for the President to agree to. Given that talks have been paused while Republicans figure out what they want to do next, it is possible that the Republican position has already fractured beyond repair.
Unfortunately, it is now critical that top level politicians and bureaucrats be great poker players. They need to be able to hold their cards close to their vests. They need to be able to pull off outrageous bluffs. And they need to be willing to go all-in. In a saner political environment, none of this would be necessary.
Given all this, I do not expect a resolution before June 1. There is a real chance that things will end up stretching a day or two past June 1. Some groundwork can be laid before then. But if that is happening, it is happening behind the scenes. So, I expect the drama to continue, but action to be lacking right up until the very last minute. Unless, of course, the Republicans implode. If that happens, I have no idea how all this will play out. Buckle up. From here on out the ride is going to get bumpier and bumpier.
