The Case of the Disappearing Debt Disaster – 6/2/2023 – Paul Krugman

Just a few days ago, it looked like GOP extremism could trigger a global financial crisis. The US debt ceiling — which allows Congress to determine spending, revenue and then refuse to allow borrowing to cover the difference — seemed to give Republicans, who control the House, access to a financial doomsday machine: the if they refuse to raise the debt limit, they could trigger a US default which, given the critical role played by US debt in the world financial system, could have been catastrophic.

That doomsday machine, in turn, seemed to give Republicans far more power than a party that narrowly controls one house of Congress should have. Would they use that power to demolish President Joe Biden’s accomplishments?

In fact, they barely scratched Biden’s paint job. And the mystery is why.

Like many observers – I think most – I wasn’t expecting this. In the spring, Republicans appeared to be converging on demands for tough spending cuts, especially for Medicaid. The Biden administration was counting on self-proclaimed centrists and business groups to pressure Republicans to back down; they didn’t. And, publicly at least, Biden officials have repeatedly rejected all possible attempts to circumvent the debt ceiling. Republicans appeared to be in a strong bargaining position.

But in the end we got some spending caps that likely would have happened even without the attempt to take the economy hostage, as “discretionary” spending would have to go through the House anyway. We got an extension of work requirements on the food stamp program for Americans in their 50s, which will cause some loss of coverage — not because they refuse to work, but because they will be held back by more bureaucracy.

And we got a side deal to cut $20 billion of the $80 billion in additional funding for the Internal Revenue Service (IRS) that was included in the Inflation Reduction Act. But that $80 billion was for a decade. In practice, efforts to crack down on wealthy tax evaders are likely to change little in the coming years, and the IRS will simply come back later for money.

In general, the government made almost no major concessions; this debt standoff turned out to be far less consequential than the debt ceiling crisis of 2011.

So how did Biden, whom right-wingers constantly deride as senile and incompetent despite a string of notable legislative achievements, accomplish this?

In the future, we will be able to obtain a detailed account of how the debt negotiations took place. Until then, it’s worth noting several broader trends in the political environment that have likely strengthened Biden’s hand.

First, Democrats are no longer intimidated by deficit criticism. In 2011, the Obama administration seemed eager to gain the approval of a Washington-area establishment dominated by Very Serious People, who insisted that debt and deficits were the most crucial issue facing the country – as opposed to, say, the high persistent unemployment. President Barack Obama came very close to agreeing to a bargain that would raise the age of eligibility for Medicare.

These days, Democrats don’t seem to care much about deficit criticism; they are likely to care even less, given the cowardly behavior of prominent groups during the debt showdown.

Second, Republicans don’t care about the budget deficit. Arguably, they never cared. But 12 years ago, many in the media and political establishment took his fiscal stance at face value. These days, their true nonchalance is declared, so it’s hard to find a commentator who seriously believes that a party seeking to stop tax evasion actions cares about debt.

Third, the Republican Party has generally backed away from pressure to drastically reduce government. We’ve come a long way since 2005, when President George W. Bush tried to privatize Social Security. Today, even far-right budget proposals tend to exempt Social Security and Medicare, and I believe Republicans are beginning to realize that Medicaid has also become an extremely popular program.

Next: the realization that even white, rural, very Trumpist areas like, say, Kentucky’s 5th Congressional District have become deeply dependent on food stamps.

Indeed, it’s hard to avoid the feeling that the Republican Party has, in general, lost interest in fiscal policy. Apparatchiks in right-wing think tanks still rail against the evils of big government, and the donor class is more opposed than ever to paying taxes. But all the right’s real passion now seems to revolve around social issues like ending abortion rights and eliminating any mention of racism in history classes.

In a way, it’s funny. Critics of Democratic politics used to berate activists for focusing on social issues while allowing Republicans to dictate the economic agenda. Now, Republicans are waging war against the Disney corporation, while the Biden administration sets out a full-scale industrial policy to combat climate change.

So what happened to debt negotiations? Maybe it boiled down to this: Kevin McCarthy wasn’t about to blow up the economy to extract political concessions because he’s the leader of a party that no longer cares about politics.

Translated by Luiz Roberto M. Gonçalves

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