Monday, October 14, 2013

Not By Accident

Thursday, Bloomberg News reported

Shortly before President Barack Obama was re-elected, he confided to John Podesta, an informal adviser, a vow he was making for his second term: He would never again bargain with Republicans to extend the U.S. debt limit. 

The precedent, set in the agreement that ended a 2011 budget standoff, “sent a signal that this was fair game to blackmail over whether the country would default,” Podesta, a onetime chief of staff to President Bill Clinton and co-chairman of Obama’s 2008 presidential transition, said in an interview. “He feels like he has to end it and end it forever.” 

The stand Obama has taken on the latest fight over the government shutdown and borrowing limit -- refusing to tie policy conditions to raising the debt ceiling -- is an attempt to repair some of the damage that he and his aides believe he sustained by making concessions to Republicans to avert a default two years ago, according to former top administration officials and advisers...

If Obama makes concessions again to House Republicans over raising the $16.7 trillion debt limit, “he’ll be viewed as a guy who you can hold up,” said Podesta, chairman of the Center for American Progress, a Washington research group with close ties to the administration.

Obama is surrounded by a core group of aides who are mostly veterans of the 2011 debt negotiations, which were followed by the first downgrade of U.S. government debt... 

At the same time, a political breakdown that leads to a debt default carries greater risk over the long run for Obama than for the Republicans. An economic crisis that might tip the country back into recession would tarnish his presidency and the durability of his initiatives such as expanding health care to millions of uninsured Americans and pushing through the most sweeping changes in financial-market rules in seven decades.

“There’s a hell of a lot more at stake for the president of the United States,” said Leon Panetta, Obama’s former defense secretary and Central Intelligence Agency director. “Nobody remembers who was speaker of the House when we went into the Depression; everybody remembers who the president was.”

He added: “Presidents who are successful are ultimately presidents who are able to get it done, get beyond this crisis. We cannot be a country that is constantly facing crisis.”

David Atkins of Digby's Hullabaloo and the Ventura County (CA) Democratic Committee applauds Obama for recognizing his mistake and resolving not to repeat it.  However, he then adds

But let's all stop pretending that the President was playing 11th dimensional chess in 2011. He wasn't. He wanted a grand bargain on the deficit (wrongly) and he thought the debt ceiling negotiations would be a good time to get it. That was an even bigger error that emboldened Republicans and put the nation at risk. Those of us who called it an error were right, his defenders were wrong, and the President is now admitting that and acting on it--much to his credit. 

President Obama may not have been playing 11th dimensional chess in 2011.  But he is now.

You might recall calls from the left in 2011 for the President to make sure the debt ceiling would be raised- without paying a ransom- by invoking the 14th Amendment, whose section 4 reads

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

The President, however, chose instead severe budget cuts, which were to have been determined by a commission but, when it failed to come to agreement, were automatically imposed by sequester.   In the current hostage situation, Slate senior editor Emily Bazelon and historian Eric Posner argue

Obama does indeed have the power to declare, without Congress, that he’ll pay off the nation’s debt. Our view is that he can cite his inherent emergency powers under the Constitution once financial markets begin to freeze up. Others have noted that the 14th Amendment provides that the “the validity of the public debt … shall not be questioned,” and have argued that while it instructs Congress, not the president, to protect the debt, the president can act if Congress violates its duty.

The White House will keep insisting it doesn’t want to act on its own because doing so would be politically risky. The president would much rather Congress fold. There is always some residual risk from doing something that hasn’t been done before, so we understand the reluctance. But if there’s no deal by the end of next week and financial markets get wobbly, Obama should just go ahead. He is not shy about advancing executive power in other domains. Why not put the country and the world financial markets out of their misery? Wouldn't the polls reflect support and relief? And wouldn't the American political system be better off if presidents in future can remove this gun from their own heads?

The White House line is that if Obama raises the debt ceiling on his own, the markets would still be spooked. There would be doubt that he actually had the authority he asserted. The whole thing would get tied up in the courts. And if the markets aren’t reassured, then his action would be not only risky politically, but pointless. Some economists share that view. “There would be too much uncertainty,” Stanford’s Darrell Duffie told us. “It would lead to a halt or abatement in trading of treasury bills.”

It’s true that debt issued by the White House would be less clearly kosher than normal debt sanctioned by Congress, simply because it’s new and different, and so less proven. People who oppose the president’s action on constitutional grounds or who might gain from default (like owners of credit default swaps) would bring suit, whereas no one would sue if Congress lifts the debt ceiling.

But lawsuits that challenge the president’s authority to issue debt would almost certainly go nowhere. Most plaintiffs would not be able to show a personal injury from the issuing of new debt. Lacking legal standing, their cases would be dismissed. Those who got beyond this stage would be blocked by the political question doctrine: Courts would dismiss the suit on the grounds that the controversy over the debt is an inter-branch conflict between the president and Congress that is not for judges to resolve. So if some creditors sell off Treasuries or refuse to buy new debt, the smartest investors—the hedge funds and the sovereign wealth funds—would sweep in to make a killing.

Bazelon and Posner concede "If Obama jumps the gun and lifts the debt ceiling before the public has a sense of crisis, he risks being accused of imperialism (and of being impeached)."  However, although articles of impeachment might be filed, there is little chance they'd go anywhere against the first black President, given a likely coalition of a few Republicans with a solid bloc of Democrats. Further, impeachment in the House and conviction in the Senate (the latter even less likely) would result in a President Biden who, as an incumbent, would be the favorite to win the next presidential election.  (Were President Clinton removed from office, Al Gore's majority would have been sufficient to prevent even the Supreme Court installing his opponent as President.)

But there is no evidence Barack Obama is seriously considering invoking the 14h Amendment.   And that is because he currently is playing 11th dimensional chess in which the most likely outcome of the debt standoff is, as Noam Scheiber maintains, one in which Obama would

basically give Republicans a trumped-up, impressive-sounding version of what he’s already offered: You guys reopen the government and raise the debt limit, and then I will dispatch my vice president and my entire economic team to negotiate face-to-face with Paul Ryan over a long-term deficit deal every week for two months (or whatever), after which they will report back to me, and John Boehner and I will discuss what they’ve come up with. Obama would have essentially offered no concessions for the reopening of the government and the raising of the debt limit. He will have committed to no cuts and no deficit-reduction targets of any kind. But he will have given Boehner a fig leaf that he can show his rank and file to persuade them that this whole suicide mission wasn’t entirely futile.

Democrats then would pat themselves on the back because they would not have given up anything substantive in the short term, though they will have rendered the GOP's intransigence a success.  Last week, Obama stated- without hint of irony or disappointment- "when you hear government not compromising, we're compromising so much we're willing to open the government at funding levels that reflect Republican wishes, that don't at all reflect our wishes."  He clearly has signaled he is willing to accept that and more through negotiation, once the federal government is re-opened and the debt ceiling raised.

And Democrats are poised to fall in line. Once the therat of either a continued government shutdown or a debt default is removed,  Senator Sherrod Brown (D-OH) told ABC's Jake Tapper Friday, a larger budget deal (likely to include cuts to earned benefits and "tax reform") would be "something we should consider. We should consider everything now," That is no Blue Dog Democrat or neo-liberal but one of the Senate's stalwart progressives.  (Think Grover Norquist suggesting a willingness to accept higher taxes on corporations.)

President Obama will have gotten another shot at a Grand Bargain.  He would be far from the wisest man in the room, but the smartest, most clever guy of them all.

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