Gaming Out the Debt Ceiling Deal

So, what am I to make of the debt ceiling deal?

To recap:  Although our formal borrowing authority ran out some time this spring, the Treasury Department was able to extend it with "extraordinary measures" until September 30, but after that we have to raise the debt ceiling or the government will not have enough money to pay its bills.  The Republican Suicide Freedom Caucus in the House refused the raise the debt ceiling without equivalent cuts in spending under Obama, and (give them points for consistency), they are refusing to do so under Trump either.  (Unfunded tax cuts are a different matter).  This means that Republicans will have to rely on Democratic votes to raise the debt ceiling.  Dems were scratching their chins, trying to figure out whether to extort something in return for their support and if so what.  No one had a plan for how to actually do this essential thing, and a crisis seemed imminent.  And did I mention that the budget runs out at the same time and if a new budget was not passed there would be yet another shutdown?

Then Hurricane Harvey hit, Houston was drowning, and holding an artificial debt ceiling crisis when there was a real crisis to deal with seemed petty.  And there appeared to be an obvious answer -- tie the debt ceiling to Hurricane Harvey relief and then everyone would have no choice but to vote for it.*  The House nonetheless passed a hurricane relief bill without the debt ceiling to satisfy the Suicide Freedom Caucus.  The plan was apparently for the Senate to amend the bill by adding a debt ceiling increase and send it back, allowing it to pass.  Basically, this was what everyone except the Suicide Freedom Caucus wanted.

The only real dispute was over how long the extension would be.  The Senate Republican leadership wanted 18 months but was prepared to settle for six.  The Democrats insisted on three months.  Trump ended up agreeing for reasons no one really knows.  The bill passed 316-90 in the House and 80-27 in the Senate in the space of two days.  Clearly everyone was relieved at postponing the crisis, even if they did not agree how long the extension should be.

So, what are the relative merits of a three month, six month, and eighteen month extension?  First of all, as before, just because the deadline formally expires does not mean the government will run out of money right away.  The Treasury can use "extraordinary measures" to delay the crisis.  In fact, the last authorization expired in March, but the Treasury was able to extend it for another six months.  Possibly the Treasury can do it again.  If so, the crisis will not strike until next summer -- after Republican primaries, but before the general election season is seriously underway.  At the same time, I have seen sources (can't find) that believe a lot of the extraordinary measures have been largely tapped out and, combined with the expense of the hurricane, will not be able to fend off the crisis for as long this time, and that it will probably strike in February or March.  That would be either in the thick of primary season or just as it begins to decline.

The three-month debt ceiling delay was accompanied by a three-month "continuing resolution," i.e., an extension of government funding at current levels.  This means that the looming threat of government shutdown really will strike in December, although it can always be postponed by yet another continuing resolution.  That means that the threat of government shutdown and the threat of debt ceiling breach will not happen at the same time, as they did last time, and will not therefore be conflated in the pubic mind.  The inconvenience associated with a shutdown and looming threat associated with a default will be separate issues. That means, on the one hand, having to explain to the public (yet again) why it really is necessary to raise the debt ceiling even though it sounds bad.  It also means three crises in the space of nine months -- first the hurricane(s), then the budget crisis, and then the debt ceiling.  Two of these crises will be completely self-inflicted.  I have to think the public will get tired of it, although in the absence of dramatic footage like flooding, much of the public will probably not notice at all.

I am inclined to think that a six-month extension would be worst from the Republican perspective.  The extension would expire in March.  By then the Treasury presumably would have largely recovered its ability to use extraordinary measures and be able to postpone a breach until next September or even October.  But that would put us exactly where we are now, with both a government shutdown and a debt ceiling breach looming and conflated in the public mind, with the mid-term elections so close at hand that the crisis would have to be an issue.  Possibly the Republicans would benefit from the rally-round-the-chief effect of crises, but I am inclined to think that Republicans would once again transform themselves into a circular firing squad, at considerable cost to themselves.  Republicans were fools to even consider this.

Finally, an eighteen-month extension would postpone the crisis until after midterm elections and give the Treasury plenty of time to recover its extraordinary measures.  The deadline would expire in March, 2019, but might be delayed until that fall.  Once again, government shutdown and debt ceiling would threaten at the same time and be conflated in the public eye.  Happening after the midterms, it is certainly possible that the Democrats might have taken one house or the other of Congress.  Generally speaking, the public has sided with the President over Congress during showdowns of this type.  With Trump -- who knows.  But Democrats had plenty of reason to want to avoid such an outcome.

In terms of politics, I would actually say a three-month extension is a reasonable compromise, not as bad for Republicans as six months or as bad for Democrats as eighteen months.

Will it allow Democrats to extort concessions in exchange for support?  Given the behavior of the Suicide Freedom Caucus, the House will clearly need Democratic votes to raise the debt ceiling.  But before anyone starts proclaiming that Trump has been rolled and that Democrats will be able to pass their whole agenda, keep in mind that their agenda still has to get past a Congress that has a Republican majority in both houses.  There probably are some measures favored by Democrats that have the prospect of enough Republican defectors to pass. And Trump just wants a signing ceremony and is completely indifferent to the substance of what he is signing.  But let's not forget that in order for anything to pass, the leadership has to actually bring it to the floor for a vote.  And that the leadership of both houses is Republican and probably will not be in a hurry to bring up measures that would pass with predominantly Democratic votes and just a few Republican defectors.  And thus far the only thing that has actually passed is a three-month extension of the debt ceiling and government funding.  So let's not break out the champagne just yet.

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*Once upon a time, long, long ago, debt ceiling games went the other way.  Everyone knew it had to be done, so politicians would attach unpopular measures to bills to raise the debt ceiling, knowing that it had to pass.