The ongoing debt ceiling debate illustrates many things, among them that the Republican Congressional leadership seems to be the only segment in Washington capable of governing.
The GOP led House, for instance, managed not only to pass a budget, something the Democrat Senate has failed to do, but pass one that made the serious, responsible cuts and starter reforms to entitlements that are necessary to prevent economic catastrophe.
The President’s contribution was to dismiss the Ryan Budget, offer one so ludicrous that even the Democrat controlled Senate rejected it, and then conjure up a budget-in-form-of-speech that referenced some spending cuts, but offered less details than a North Korean press conference.
Now, with the debt-limit ceiling deadline looming, the House Republicans have again produced the only responsible solution possible; raise the limit by the requested amount, but only in conjunction with budget cuts at least equaling the amount of the raise (including necessary systemic reforms to entitlements), a cap on future spending, and a balanced budget amendment that would prevent this silliness from happening again.
This is the only reasonable option. The President has offered the nation a false choice when it comes to this issue; raise the limit and all continues happily along as normal, or do not, and risk default and economic calamity.
The reality is that a crucial third element is being left out. Raising the limit without getting the cause of the problem (profligate spending leading to enormous debt and unmanageable deficits) under control, or doing so in a way that will further seize economic growth and job creation, would be just as devastating to the economy as any of the potential scenarios that accompany exceeding the debt limit.
Raising the debt limit needs to be done, and ultimately will be done one way or another. It is true that default would be a political decision, and not an economic one; there will be enough money coming into the federal coffers to service the debt (ironically, the 14th amendment, which the Democrats are suddenly so fond of, would probably require the President to do just that), make mandated entitlement payments, and pay the military and defense contractors, with a little left over to pay for some of the federal governments gestating list of expenses it has granted itself – but nowhere close to all of them.
This creates two problems; first, even absent an actual default, markets most likely will react negatively, and the nations credit rating be adversely affected – as will happen in the event that the spending and debt load continues its proliferation, or if taxes are increased in an attempt to finance it.
But the other problem is simply this; just as default is a political decision, so too will be prioritization of payments. Governments have demonstrated a long established proclivity towards cutting the most painful, politically visible things possible as a method of saying “we told you so” when they fail to get their fiscal way. President Obama adumbrated precisely that earlier this week, when he suggested that seniors may not get their Social Security checks should a deal not be reached. To do so or not would be entirely up to the President and his Treasury – but the blame would be paradoxically aimed squarely at the Republicans, making necessary cuts and reforms virtually impossible.
The sober fact is that there is unlikely to be a happy ending to this in the short term. The Democrats kindergarten-level understanding of economics will prevent any sound and rational option that the House offers from passing the Senate; and would be rejected by the President in any case. And the GOP House leadership is entirely correct in refusing to consider any plan that includes tax increases, particularly of the kind and scope suggested by the White House, which would sabotage the growth and employment creation that are prerequisites for any economic recovery.
So what to do? The House should go ahead and pass a bill that raises the ceiling, but addresses the issues that put the nation in this predicament in the first place; one that makes required cuts and a cap on future spending; that makes fundamental reforms to entitlement programs; offers tax reform that includes eliminating deductions and credits in exchange for a lowered, single rate; and presents a long overdue balanced budget amendment. Then let the Democrats in the Senate vote against it, fall back on Senator McConnell’s “contingency plan” if need be, and dare them, and the administration, to own their decisions.