What do you need to know about US politics? How about this: The policies it would take to foster an actually thriving labor market are not on the table. But unprovoked debt default is.
The Republicans are no longer interested in fostering domestic economic growth; that would take finding a nuanced position on the relationship between government and markets. It would take eliminating the ‘manufactured crisis’ from their playbook. It would take a willingness to grow deficits when private spending slacks. It would take investments in things like infrastructure, universal preschool, science, and welfare.
Democrats are no longer interested in pushing Republicans to the middle or left; they are content letting the GOP live out on the edge of sanity where they harbor no chance at growing their audiences. Indeed, nothing has been better for the Democrats’ chances in 2016 than this past month’s Cruz-led suicide caucus. Obama and Democrats can give the GOP Paul Ryan-level spending levels, which are stunting economic growth, and look sane while doing it, because the GOP refuses it anyway without a fuller ransom. This makes the Democrats look good by comparison, but it masks a very bad policy outcome. It is a loss-loss: we get a stupid party (GOP) while maintaining a stupid policy (sequester).
Republicans are at all-time low favorability ratings, but the country is not better off for it, because the GOP will get what they want anyway: lower government spending. That is their answer to everything: lower spending. Even when the context is a weak recovery coming out of a historic recession, lower spending. Even when private spending remains anemic, lower spending. Even when beset by a liquidity trap in which interest rates cannot go any lower, lower spending. Always lower spending.
This lower government spending is damaging the US domestic economy. Brookings Institution researchers Greenstone and Looney estimate post-recession cuts in public spending have cost 2.2 million jobs. They conclude:
By cutting jobs during a period of already high unemployment, budget policies have contributed to the tepid pace of labor-market recovery and stand out as a departure from typical policy responses after recessions.
Notice what Greenstone and Looney are saying: Budget policies during this recovery have been at odds with how we reacted during previous recoveries. If the goal is to help the domestic economy, budget policy has been demonstrably irrational: we have ignored policy truths that we used to simply know.
Which leads me to the debt ceiling.
Last week I put the chances at a debt-ceiling breach somewhere between 6-10 percent. Today, four days till the so-called “X date” I put the chances higher, but not by much: maybe solidly 10-15 percent. But rising. Why I don’t say fifty-fifty like many others is the sheer consequence that could (probably will) entail. Every remotely reasonable Washington actor must be keenly aware, and should right now be fearful of being responsible for home-made catastrophe.
Why is the percentage not zero then? Why is there any chance at a default?
Because neither party shows much inclination in pushing a truly domestic growth-centered set of policies, and neither party is being held accountable for terrible fiscal policies. Republicans push crisis after crisis, firing up their base audience but no one else. Democrats happily let them, because it is good politics on their part.
A debt-ceiling breach would harm the US economy, probably the world economy. But so does sequestration. So did 2011’s debt-ceiling debate. So does the Paul Ryan budget. So does putting the debt-ceiling on the negotiating table to begin with. Almost every action Washington has taken since 2010 has been bad for the domestic economy.
Furthermore, I’m not sure how much a breach would harm, if at all, the GOP’s main clients, the world-economic and financial elite, who have been doing quite well throughout this period of never-ending crisis. Profits are extraordinary. And amazingly, 95 percent of post-recession wealth is going to the wealthiest 1 percent. So yes, GOP clients seem pretty well insulated. As Krugman put it, “the modern GOP is bad for business, [but] it’s arguably good for wealthy business leaders.”
And, I’m fairly confident a debt-ceiling breach would politically help the Democrats, both in 2014 and 2016.
Bottom line: Those who matter are less susceptible, perhaps almost totally immune, to the risks of a debt-ceiling breach. It is possible a debt-ceiling breach would further the interests of the most powerful. That this is possibly true is the only reason default remains on the table.
That said, these predictions and analysis are presented with caution. There are complex incentives here. The only thing I’m certain is nothing is as it seems. To make sense of it I’ll be following the interests.