The trains are speeding down the track toward each other, but as the deadline for raising the debt ceiling nears, the establishment seems to assume that somehow Republicans and Democrats will find a way to avoid a head-on collision. But there's always the chance that this could become a case of runaway trains – and that in the perennially peculiar month of August in our politics, the United States could actually default on its debt. Here's how it could happen.
President Obama is looking for compromise, but the GOP's definition of that looks more like wholesale surrender. The president won't accept budget cuts that would shatter the recovery and shred the social safety net. He also knows, as do most economists who aren’t paid for their opinions by right-wing non-think tanks, that the great fiscal challenge facing America can’t be met without new revenues.
That is anathema to the GOP, which has elevated "no new taxes" to the level of inviolable doctrine. Never mind that Ronald Reagan, so often invoked as an icon by conservatives, not only raised the debt ceiling repeatedly, but raised taxes when it was in the national interest. Indeed, the tax burden today is now lower than it was under Reagan – and lower than at any time since 1958.
The Republicans’ anti-tax hemlock is also laced with hypocrisy. The Ryan Medicare proposal, named for Republican Rep. Paul Ryan of Wisconsin, represents an effective tax increase averaging $6,000 a year for seniors – paid not to the government, but to insurance companies for the depleted value of the vouchers with which Ryan replaces Medicare. (Perhaps Democrats ought to start calling it exactly that – a tax increase.) In today's conservative vision, the lower taxes are for the big guys – the wealthiest and the most influential – and not for the "little people" who last November were tricked into voting against themselves by the GOP. The Republicans were elected in part by charging falsely that health reform would undermine Medicare. They pledged to protect it. Their signature legislation so far would destroy it.
No wonder the voters in a reliably Republican district in upstate New York just upended all the conventional assumptions and sent a Democrat to Congress in a special election. They were also sending a message – which Ryan and his colleagues seem determined not to hear. They’re throwing around the old Bush-league word "Mediscare" – when in fact the next generation of seniors has every right to be entirely scared about what the GOP is proposing.
We should all be scared of the Republican intransigence on the budget and the debt ceiling, which is driven by ideology and Tea Party blackmail, and perhaps by something more. Refusing to raise the debt ceiling – and that would be the mother of all government shutdowns – may be their chosen strategy and only hope for 2012. Right now the economy is bumpy, but trending up. Even while the economic uncertainty still grips voters, in trial heats Obama runs well ahead of every GOP rival. Imagine the margin if the Americans feel that things are steadily moving in the right direction by Election Day – and add to that the toxic fallout of the Ryan War on Medicare.
So Republicans could decide that blowing up the economy at least gives them a chance to shake up the electoral landscape. Of course, they won’t say that. Instead we've heard rationalizations that it would be okay if the government ran out of money – for example, that it could pay bondholders instead of Social Security recipients. At least that might be tolerable, it's been suggested, for a few days. This is the same kind of thinking that let Lehman Brothers go down, triggering the great crash of 2008.
In the polls people say they oppose raising the debt ceiling. That will be their position until it happens and interest rates soar; the dollar plummets; the financial system freezes up; soldiers, teachers, and retirees don't get paid; and millions of workers get laid off. The consequences are not completely predictable but almost certainly catastrophic. The Republicans would blame Obama, charging that it’s all his fault because he wouldn’t slash spending enough.
This strategy is a black box: No one can know which party would get hit by the falling political debris as the economic debris rains down on people across the country. It’s more than possible that the GOP would be tagged as the culprit; that’s what happened during the government shutdown of the 1990s. But Republicans may be more than willing to run the risk, despite the sensible caution that may lurk somewhere in the back of Senate Majority Leader John Boehner’s head. After all, if they are going to lose to Obama anyway, why not throw all the cards up in the air?
One answer is that this could not only assure the president’s re-election, but cost dozens of House seats, even control of the House and potential control of the Senate. Normally that would stay the impulse to gamble everything, including the American economy, on an exercise in blatant irresponsibility. But this is not a normal Republican party. One of Washington’s leading lobbyists confides that his Republican partners are stunned by the attitudes of the GOP’s freshman class in the House: "They just don’t care whether they get re-elected." Perhaps that's understandable. Why would they want to serve in a government they are determined to dismantle?
By the ides of August, both sides could draw back from the brink – less likely with a grand bargain than with a stopgap measure. For example, they could agree on a six-month increase in the debt ceiling while they negotiate tax reform, including corporate tax reform, which could raise revenue without raising rates. That would give Republicans a fig leaf. But they may not want one. They may be tempted instead to serve both dogma and their own fading prospects to defeat Obama by inviting economic ruin in a reckless attempt to rule.