The Debt Ceiling’s Political Implications

Posted: July 13, 2011 in Debt Ceiling, Public Opinion
Tags: , ,

Ezra Klein writes,

The cynical interpretation of McConnell’s motivations [for his proposal] is that McConnell sees that the White House is winning the politics of this issue, and he knows that Republicans will eventually be forced to agree to something. When they do, President Obama will be the great Compromiser-in-Chief. He’ll have shown himself willing to face down his party to make a deal and he’ll get credit for making it impossible for Republicans to continue to say no. After three years during which McConnell had slowly but surely destroyed Obama’s reputation as a postpartisan unifier, the White House will see its core political brand revived and invigorated. Obama will be a lock for reelection.

Klein and the “cynical interpretation”  of McConnell’s proposal are right in some ways and wrong in others.

Klein is wrong that “the White House is winning the politics of this issue.”   A Gallup poll released today shows twice as many Americans oppose a debt ceiling increase as support an increase.  Even among independents,  46% oppose an increase and only 18% support an increase.  Maybe the White House is winning the public opinion war on the desirability of the economic outcomes of debt limit decisions (after all, who really likes lower credit ratings?), but for the debt limit in the abstract, the public opposes the White House’s stance.

Additionally, the interpretation assumes that McConnell is acting under the assumption that there is no doubt about a debt limit increase.  Yet it is still very possible there will not be a debt limit increase.  What happens then?  Would this interpretation make sense?

My former political science professor, John Sides, gets it right concerning the outcome of a failure to compromise:

Assume there is no deal and then assume, as Geithner and others have warned, that there are serious consequences for the economy when the debt ceiling isn’t raised.  This will hurt Obama.  And it will hurt him more than it will hurt the Republican Party.  Presidents suffer the consequences of a bad economy.  Divided government does not change this.  Beware pundits who see silver linings for Obama in this scenario.

If McConnell’s proposal is really just a mad scramble to claim credit for a budget compromise that will inevitably happen with the intent of leveraging the resulting political capital of the compromise against Obama on behalf of the political interests of himself and his party, it makes very little sense for him to push for a debt limit increase. Under a scenario in which the debt limit does not increase, the GOP has better political leverage over Democrats for meaningful spending reductions.  Thus Republicans are heavily and perversely incentivized to not raise the debt ceiling and to weaken the economy due to their own re-election interests.

However, most people (especially predictive markets!) give Washington a good chance at reaching a compromise.  This outcome more likely considering Boehner, Obama and Co. managed to pull off an enormous tax compromise not too long ago. This supports the cynical interpretation on its basic claims, but overlooks the fact that a debt ceiling increase may not necessarily turn Obama into The Great Compromiser.  Klein puts too much faith in McConnell’s naive pursuit of political clout, too much importance on political action, and too little faith in the primary predictor of elections to predict elections: the economy.  High level party politicians, like McConnell, understand that America’s economic condition is of utmost importance for both campaigning and influencing voters’ decisions, and would not bet against a bad economy knocking off Obama.

Sides once again breaks down the possible outcomes.  First he asks, “What if there is a deal but it hurts the economy?”

Assume the Keynesians are right and the GOP and, for that matter, Obama are wrong.  If so, fiscal austerity is only going to make the economy worse.  Maybe not as bad as it would be if the debt ceiling weren’t raised, but still: worse.  If so, Obama will suffer.  End of story.  It does not matter that the deficit will (in theory) go down.  Election-year changes in the size of the national debt do not affect election outcomes.  And it does not matter that a deal could make Obama appear “bipartisan.”  Independent voters do not put political process ahead of the most tangible outcome: the economy.  See also Matt Yglesias.

So it seems that Klein’s vision of a post-compromise presidency even more unlikely.  Klein and the cynicists both believe a compromise will grant substantial political capital to Obama.  Yet the reality is that in the event that the debt ceiling harms the economy, Obama can emerge from a debt limit compromise considerably weaker in the long term.  So perhaps we should reconsider McConnell’s rationale: is he proposing a compromise not to merely join the band-wagon and join in the credit claiming, but rather to help lead Obama to a political demise of the president’s own design?

Sides then asks, “What if there is a deal but raising the debt ceiling doesn’t cause substantial economic harm?”

Assume that there is some sort of deal…I will ignore for the moment what must then be negotiated in 2012.  Assume that neither a 2011 deal nor any future deals affect the economy between now and November 2012.  Then what?  Let’s subdivide.

Scenario [1]: The economy is still weak throughout 2012, as some forecasts suggest.  Obama will suffer…He may win, depending on the GOP nominee and the campaign itself, but it will not be easy.  All the GOP has to do is hammer him on jobs, jobs, jobs and no one will remember his masterful bargaining over the debt ceiling, or what the debt ceiling is in the first place.

Scenario [2]: The economy does improve—somehow, someway.  Now Obama has the edge, and the economy is what he should campaign on.  Maybe it’s not morning in America, but election-year economic growth is a powerful elixir to myopic voters.

So I have to conclude that Klein is pretty wrong and the logic behind the cynical interpretation is questionable: if the economy experiences respectable growth and unemployment drops, the cynical interpretation makes sense and Obama’s resurgent political power will vindicate Klein’s vision.  If the economy stagnates or weakens and unemployment doesn’t fall, Klein is wrong about the future and Obama looks to be in trouble.  It is only if McConnell is acting in anticipation of the final scenario, the situation in which the economy awakens and the debt limit increases, that it makes sense for McConnell to be acting in a truly political, bandwagoning manner as described in the cynical interpretation.

About these ads

Reply to Post

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s