As a possible debt limit breach nears (and I now consider it more likely than not to happen), Republicans have begun to argue that debt default isn't actually a problem.
I guess they pretty much have to say that at this point, given how they are getting called out on the extortion angle. And to be fair, we really don't know exactly what will happen. The people at Treasury, who are in the best position to know, and who say it would be disastrous (probably around November 1 or so), admittedly have a dog in the fight. Now, I myself - concededly, without direct personal knowledge / expertise on the question of how it would actually play out - am very much inclined to believe them, but it's certainly legitimate to raise the issue.
So the dispute about how bad it would/will be was bound to get going, given where the debate now stands. And one therefore naturally expects both sides to start trotting out their heavy artillery. But at the same time, if you're a piece of heavy artillery and your side contacts you, one perspective that you might consider adopting is that, while we genuinely don't know what would happen (and one can raise the possibility that the Treasury is being too dire), the risks are great enough that surely no sane person should want the actual experiment to take place.
Against this background, I must say that I was startled to read about Martin Feldstein saying the following on Bloomberg TV about the risk of a catastrophic debt default: "I think it's a non-issue. I think it wouldn't happen.... I think default as such is a scare tactic.... [The Treasury] can't pay for everything, but it can certainly avoid defaulting on the debt. It can certainly avoid not paying Social Security checks, and so that's going to happen."
Might Feldstein be right? I don't know enough to say that it's impossible. But is he being honest? No, because he has no way of knowing that it is actually true, when it depends (among other things) on Treasury's daily cash flows, computer payment systems, etcetera. So I think we must give him a grade of F here, even without saying conclusively (as I can't, given the limits of my own knowledge on this issue) that he is definitely wrong. He presumably was asked to come out and speak the party line, so as to raise a cloud of doubt about the issue of debt default calamity, and for whatever reasons he agreed to do so. Is he concerned about the effect on his reputation if it turns out that he is wrong? Apparently not.
This is not the first time that Feldstein has risked his reputation in ways that may strike the outsider as unwise. During the 2012 presidential campaign, he published an op-ed in the Wall Street Journal asserting that Romney's tax plan could indeed add up arithmetically as claimed. This involved his making at least one comical arithmetical error, and including at least one assumption that he did not mention, but had to know was highly dubious. Per a response from people at the Tax Policy Center who had released the definitive study showing that Romney's plan could not add up:
"1. He assumes that each dollar of itemized deductions lost by households with income above $100,000 would generate 30 cents in revenue. However, the Romney plan has a maximum rate of only 28 percent ....
"2. He assumes that taxpayers earning more than $100,000 who currently itemize would lose not only their itemized deductions but also their ability take the standard deduction. Normally, taxpayers have the option of itemizing their deductions or taking the standard deduction. [I myself would say that, while one is free to advocate such a change, honesty with one's readers would indicate making this clear.]
"If the standard deduction was retained for all households, and denying itemized deductions was assumed to raise revenue at a more realistic average marginal tax rate of 24 percent under Romney's plan, Feldstein's proposals would fall about $70 billion short of revenue-neutral, even if taxpayers don't change their behavior."
OK, am I being unduly harsh with Feldstein here, because he and I have both to a degree chosen sides,. and not the same side? What about, say, Krugman? But Krugman says what he thinks, not what party leaders ask him to say. What's more, right or wrong, and even if he plays a few rhetorical tricks, he says things that he reasonably thinks he knows about, and believes in good faith are true. Plus, he generally avoids elementary errors It's hard to view Feldstein in the same light here.