Playing Chicken with the Nation's Credit
Federal Reserve chairman Ben Bernanke carefully laid out in a speech on Tuesday the extremely severe consequences if the limit on the national debt is not raised in time. (President Obama also addressed the subject more briefly in an interview earlier in the day.) Some of the undesirable consequences, in the form of market reactions to doubt about future U.S. willingness to meet its financial obligations, can begin to occur as a result of the brinksmanship, even before any default occurs. Given the dangers, why are Congressional Republicans acting so recklessly in holding the debt limit hostage to their demands?
One first has to consider the possibility that they just may not fully understand those dangers. With some on the airhead wing of the Republican Party, as represented by Sarah Palin, this may be a factor. But I would give most of the Republican negotiators credit for more intelligence than that.
So we have a classic game of chicken, in which one side dares the other to give in to avoid a calamity. It is a game that the Republicans have forced upon the Obama administration. As the foremost theorist of coercion and bargaining, Thomas Schelling, observed, if someone challenges you to a game of chicken and you say you would rather not play, you have just played (and lost).
Schelling's ideas from the 1960s help us in other ways to understand what is going on here. He taught us that the side that has the advantage in a game of chicken is the one that not only is more reckless but also is widely perceived to be more reckless. Here the Republicans have a clear advantage, with a well established record of reckless fiscal and economic policies. They especially burnished that record during the administration of George W. Bush, when the national debt nearly doubled from $5.7 trillion to $10.6 trillion. (The almost $5 trillion in debt added during Bush's eight years is more than triple the $1.5 trillion added during the preceding eight years of Bill Clinton's presidency.)
There is no more logical reason for the non-defense discretionary spending that is the Congressional Republicans' principal target to be linked to the debt ceiling than there would be to link it to reductions in military spending or to the entire revenue side of the budget equation. But the Republicans have managed to benefit somewhat from another of Schelling's principles, which has to do with a sense of natural linkage between the demand being made and the consequence being threatened if the demand is not met. Isn't it natural, they say, not to allow the debt to go up further until we do something about that out-of-control spending? This approach is facilitated by defense spending being protected by the charge of being soft on national security levied against anyone trying to cut that spending, and by the usual political anathema surrounding the raising of taxes—even though most Republicans as well as Democrats are smart enough to realize that tax increases will eventually have to be part of any deficit reduction. (The nation sure could use the cut-to-the-quick clarity of Walter Mondale, who said in his 1984 presidential campaign, “Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did.”)
Perhaps the main explanation for the irresponsible chicken-playing is that the Republicans who are playing the game, although they may not have an ignorantly dismissive, Palinesque attitude toward default, do have ideological priorities that are sufficiently different from those of other people that they simply aren't as scared by this latest financial threat. They even see political advantage in financial morass and economic failure. Bush's upper-bracket, deficit-accelerating tax cuts were the realization of an ideological aspiration, as was the launching of a neoconservative war of choice in Iraq. The first failed to generate growth and revenue enhancement, and the second failed to remake the politics of the Middle East. But even in failure, these tremendously expensive mistakes set the stage for the starve-the-beast attack of today on non-military programs. The Great Recession, which was in full steam when Bush handed the presidency to Obama and led to the emergency funding that spanned both administrations and added further to the mountain of debt, set the stage even further.