So why am I not reassured?
In part, it’s because I remember hearing people say that house prices would only ever go up, or that Donald Trump would never become president. But it’s also because the argument for complacency underestimates the distance between the parties.
Republicans in Washington believe Democrats will say to the end they will never negotiate a debt ceiling until they reach a deal — just as President Barack Obama agreed to spending cuts in 2011 in exchange for raising the ceiling last time the parties had this kind of fallout on the issue.
Democrats believe Obama has set a dangerous precedent and want to set a new one: You don’t negotiate with hostage-takers.
In their view, Congress has a responsibility to pass a “clean” increase in the debt ceiling without associated spending cuts. Also, they don’t see the point in negotiating with this particular crew of hostage-takers, who are unlikely to agree on what they want among themselves. Some Republicans want major changes to programs for seniors, which are driving rising national debt, while others would be willing to settle for a commission to look at budget reforms. It is questionable whether a house can support every plan with a narrow majority.
Even the left-most Republicans in the House of Representatives find the requirement to vote for an autonomous debt ceiling increase absurd. Some Democrats are also calling for negotiations. Raising the debt limit was often linked to other policies, and each of the last two Democratic presidents voted against increases while in the Senate.
While Republicans believe they can use debt-limit legislation to win political concessions from Democrats, Democrats believe they can use it to gain political gains. White House Chief of Staff Ron Klain reportedly told a top congressional Democrat that the fight could lead to what the Post called “significant political benefits” for his party.
The Democrats’ strategy demands that Republicans get nothing, not even anything to save their face, in exchange for raising the debt ceiling, and assumes voters will blame Republicans for any woes the hostage economy suffers .
On the contrary, the Republican strategy assumes that the Democrats, as the party in power and the party more likely to support government spending, have a stronger political incentive to raise the cap.
Both sides cannot be right. You will slowly learn who is wrong. Each side will dismiss any strong rhetoric from the other as a bluff. She will see any sign of imminent default, and any sign that default will lead to economic disaster, as evidence that her strategy is about to work.
In the past, stock markets have prompted Congress to act. During the 2008 financial crisis, Congress initially rejected a bailout. Markets collapsed and Congress passed one. Today, however, the markets seem to believe in a deal. This trust could prove self-defeating. We may actually need to breach the debt ceiling and default to scare the markets.
Not many congressmen dispute that the debt limit should be raised: no one has a plan to bring the deficit to zero immediately, and no such plan would be plausible.
But each party wants it elevated on its own terms. They don’t agree on budget priorities. Or the morality of using the debt limit as a means of debt containment. Or what a realistic negotiation result would be. Or what the political consequences of exceeding the limit would be.
Despite all of this, the current dominant theory is that our political class will manage to come very close to defaulting without actually running into one. Unhappy is the country that needs so much happiness.