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The writer is a contributing editor at the Claremont Review of Books
In Washington, a dramatic legislative week ended with a mix of tragedy and farce. President Joe Biden’s plan to extend welfare programmes and give the country a green makeover was advancing behind a sophisticated legislative strategy. Almost $2tn passed as a Covid-19 stimulus measure in March and $1.2tn was packaged in a roads-and-trains “infrastructure” bill this summer, with considerable Republican support. The more controversial $3.5tn “social policy” bill, with its green regulations and its tax hikes, was left until later. But this week progressives in Biden’s own party, resenting the delay, threatened to sabotage the infrastructure bill in the House. Speaker Nancy Pelosi delayed the vote, leaving the whole Biden agenda in jeopardy.
The debacle has played out against the backdrop of growing fiscal uncertainty. Democrats, who hold both houses of Congress, let the fiscal year finish on September 30 without a budget, and scrambled to avoid a government shutdown. Republicans, meanwhile, deployed a powerful weapon — they refused to vote for an increase in the “debt ceiling,” without which the government will be unable to borrow after sometime in mid-October. Many economists and politicians warn that messing with the debt ceiling could bring an implosion of world credit markets — some attributing the Republican position to malevolence, others to insanity. Ominously for the Democrats, much of the public do not see it this way.
Republicans might have reason to worry about budget profligacy. Government debt stands at 125 per cent of GDP. But Republicans are not the fastidious book-balancers they once were, and their real grievance lies elsewhere. The New York Times describes the vast social-policy bill as “intended to shape every facet of American life”. Yet Democrats are making use of a procedure called “reconciliation”, which circumvents the Senate’s usual rules of debate, permitting passage on a party-line vote. Senate minority leader Mitch McConnell has said that if Democrats want to transform the country on their own, they can account for the resulting expense on their own, too.
In the wake of Donald Trump’s embarrassing exit from office, many Republicans were in a bipartisan mood. No longer. On two occasions since August, Biden has appeared incompetent — first, during the botched retreat from Afghanistan; then in his muddled response to the sudden movement of tens of thousands of Haitian immigrants across the Rio Grande.
Republicans are now invoking the country’s $28tn debt to cast the Democrats as spendthrifts. Under present circumstances, it is a winning strategy. Inflation has risen. Signs of higher interest rates make the time less propitious for expensive programmes. What is more, Democrats control all three branches of government. When Democrats used the debt ceiling as a weapon against a similarly well-positioned George W Bush in 2006, it was he who suffered. Today it is Biden. According to Politico, 31 per cent would blame Democrats and 20 per cent Republicans in the case of a default.
The debt ceiling is an American peculiarity but its roots are deep. Intergenerational debt preoccupied the drafters of the US constitution. Writing to James Madison from Paris, two months after the fall of the Bastille, Thomas Jefferson doubted that “one generation of men has a right to bind another.” It is Congress, not the president, that is constitutionally authorised to borrow in the name of the state. The antecedents of today’s debt ceilings arose during the first world war, not to enforce fiscal discipline but, on the contrary, to make borrowing routine.
The world’s investors and macroeconomists are uncomfortable that this power should be in the hands of a potentially stubborn majority. US Treasury secretary Janet Yellen has said it would be “catastrophe” if the US were to bump up against the debt ceiling. Some have urged Biden to mint a trillion-dollar platinum coin, others that he should resort to a tortured reading of the 14th Amendment to raise the debt ceiling unilaterally.
Republicans, meanwhile, might think a debt-ceiling breach would be less of a threat than the experts say. In 2011 when S&P downgraded American debt from AAA to AA+, it cost the government $1.3bn in interest. That’s real money, but it is not impressive alongside a Democratic spending bill designed to cost taxpayers almost 3,000 times as much.
The grip of voters on their economies has loosened under the subprime and Covid-19 crises — especially when it comes to complex matters of budgeting, macroeconomics and finance. Evidence is proliferating, from Barack Obama’s unilateral suspension of corporate rules in the early days of his Affordable Care Act to the European Central Bank’s steady expansion of its role since the euro crisis. Elected and administrative elites seem bound by democratic constraints . . . except on really important matters. Against all expectations, Republicans are benefiting from their debt brinkmanship. Perhaps voters want the question brought to a head.