Debt Ceiling 2: Electric Boogaloo

In case you missed it—and you probably did—the most important political news of the year came a few weeks ago when House Speaker John Boehner promised a repeat of last summer’s debt ceiling showdown:

“That night in New York City, I put forth the principle that we should not raise the debt ceiling without real spending cuts and reforms that exceed the amount of the debt limit increase…. When the time comes, I will again insist on my simple principle of cuts and reforms greater than the debt limit increase. This is the only avenue I see right now to force the elected leadership of this country to solve our structural fiscal imbalance. If that means we have to do a series of stop-gap measures, so be it - but that’s not the ideal. Let’s start solving the problem. We can make the bold cuts and reforms necessary to meet this principle, and we must.”

Later in the year, the government will bump up against its debt limit of $16.4 trillion. If Congress refuses to raise the limit, the United States will have no choice but to default on its debt. We came to the brink of this last year, and as Betsey Stevenson and Justin Wolfers describe for Reuters, it was disastrous for the economy:

Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. […]

Growth in nonfarm payrolls decelerated to an average 88,000 a month during the three months of the debt-ceiling impasse, compared with an average of 176,000 in the first five months of 2011 (see chart). Payroll growth subsequently recovered and has averaged 187,000 jobs a month since. Despite the rebound in job growth, employment is likely still below where it would otherwise have been.

Some commenters described Boehner’s declaration as a plan to sink the economy, and it’s not hard to see why; a second fight over the debt ceiling would inhibit economic growth, and throw a huge wrench into Obama’s reelection effort. If you don’t think that Republicans would deliberately sabotage the economy for the sake of winning a presidential election, then you haven’t been paying attention; for three-and-a-half years, Republicans have waged a total war on Obama’s efforts to fix the economy. They opposed the stimulus, pushed for spending cuts, blocked further measures to improve the economic picture, and then blamed Obama for the results. With that in mind, causing another debt ceiling crisis would be par for the course.

The smart thing for Obama to do would be to declare the debt ceiling unconstitutional, and direct the Treasury to ignore it. In the short-term, there would be a firestorm of controversy. But in the long-term, he will have taken a potent weapon off the table, and potentially saved his reelection bid.

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