Playing chicken

Following the debt ceiling debate, Democrats called Tea Party Republicans terrorists, hostage-takers, kidnappers, and villains bent on destroying the world. (I’m not making any of those up, even the last.) Beyond the hyperventilation, there is a serious criticism there: Democrats accuse Republicans of extortion, threatening to destroy the economy if they didn’t get their way.

Setting aside the hyperbole, there is another way to describe what just happened; Democrats and Republicans were playing chicken. That description gets to the point best, because, after all, it takes two to play chicken.

It’s not true that the Republicans refused to raise the debt ceiling. In fact, the House passed two bills that would raise the debt ceiling (in addition to the ultimate compromise); both were rejected by the Democratic Senate. So both sides were on record as saying that they preferred no debt-ceiling increase — and a possible default — to an increase on the other side’s terms.

For many Republicans it’s not hard to understand why. They see the long-term debt crisis as an existential threat to our nation. They saw increasing our debt without cutting spending as worse, in the long run, than the possibility of a technical default. Moreover, they also saw that the government has the cash flow to continue paying the debt, so there’s needn’t be even a technical default. (In fact, the government has the cash flow to cover entitlement spending as well.)

For Democrats it’s harder to understand. If you accept their rhetoric, they did see this as a disaster, but they played chicken anyway. They said they would prefer to melt down the economy than see substantial cuts in spending. Half of the House Democrats wouldn’t even accept the final compromise, with small but meaningful cuts in spending.

Now, one might say that the grown-up thing to do would have been to take default off the table. They should have passed a bill that ensured that we would continue to serve the federal debt even if the debt ceiling were not raised. Then we could have debated the issue without endangering our nation’s credit rating.

In fact, that is exactly what some Republicans tried to do. Sen. Pat Toomey (R-PA) introduced the Full Faith and Credit Act, the substance of which read, in its entirety:

In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the authority of the Department of the Treasury provided in section 3123 of title 31, United States Code, to pay with legal tender the principal and interest on debt held by the public shall take priority over all other obligations incurred by the Government of the United States.

Toomey’s proposal was voted down on party lines. Democrats derided it as the “pay China first” bill, even though they knew perfectly well that most of the federal debt is held by Americans.

We need to understand this. The Democrats wanted a risk of default. Without it, they were afraid that Republicans would be emboldened to hold the line on debt. They were probably right, but we need to understand who it was that was engaging in “extortion”.

Later, Toomey introduced a modified version of the bill that would also prioritize Social Security and military pay, but that wasn’t any more popular with Democrats. And that tells you what you need to know. The Democrats’ position wasn’t about preventing default and protecting Social Security payments. Quite the opposite: preserving the risk of default and Social Security interruption was their strategy for averting big spending cuts and entitlement reform.

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