Monday, September 30, 2013

Probable government shutdown, with possible debt default to come

Some people I know are glad (all things considered) about the apparently pending government shutdown - not that they actually want it, but simply because, if something bad is bound to happen, a debt default would be even worse.  If it's one or the other - shutdown or default - they are certainly right about this.  But that's not to say that we won't end up with both.

If it does come down to a debt default, I am glad to see that the Neil Buchanan-Michael Dorf argument, to the effect that issuing debt above the ceiling would be less illegal than any of the other options President Obama would have (such as declining to spend appropriated funds) is catching on, such as in today's New York Times op-ed by Henry Aaron.  Legally speaking, the Buchanan-Dorf analysis strikes me as plausible enough.  (Given the lack of clear criteria for defining "correct" legal answers in advance, there often really is no answer until something emerges through the actual legal process, unpredictably even if in the end authoritatively.)  And their approach not only is much less goofy than issuing a platinum coin, but strikes me as more circumspect than a Fourteenth Amendment-based approach.  Moreover, while the Obama Administration certainly should not suggest in advance that it would breach the debt ceiling, doing so on the back end might make sense, perhaps as chaos increasingly loomed and after having demonstrated that a selective payment approach was unfeasible.

But the "least illegal course" approach raises an empirical question that cannot be tested in advance, to the effect of how the markets would actually react to debt issuance that contravened the ceiling.  House Republicans would no doubt be doing their best to create financial market havoc, by shouting that the debt was legally invalid.  And while the debt no doubt would eventually be honored (whether via judicial decision or Congressional action), things could get ugly in the meantime, and leave the U.S. with a permanently stained fiscal reputation.

Even if the this fall's contrived crises play out relatively well, however, we are still on a "Breaking Bad" path as a country. (Yes, I spent the entire late summer through last night enraptured by the show, although, pending re-viewing, I found the final episode perhaps a bit too neat.)  Especially in a non-parliamentary system with multiple veto-like choke points, it's hard to survive having a sizable and powerful group - maybe 20 percent of registered voters, but a primary-day voting majority in one of the parties - that would rather blow up everything than not get its own way.  This is potentially at least as dangerous as domestic terrorism, and perhaps more so.

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