"How To (Temporarily) Survive a Debtpocalypse"
Intra-caucus dynamics on the GOP side seem to be dooming the debt limit talks. Eric Cantor’s preference is for John Boehner to sign a deal he can grumble about, so that when the GOP loses seats in 2012 he can challenge Boehner for the leadership. Boehner, meanwhile, doesn’t want to sign a deal that Cantor won’t sign. Consequently, we can’t get a deal.
This, then, returns us to the subject of tactical modalities available if the country runs up to the debt ceiling. The key issue at this point becomes the fact that hitting the debt ceiling doesn’t force an automatic default or a government shutdown. Revenue continues to come in to the federal government. There’s simply a gap between how much comes in and how much the government is supposed to spend. The first step to sound policy in this case is to make sure we keep paying interest on the debt. Thus default and immediate catastrophe is avoided. Second, what you want to do is minimize the impact on government activities. That means that in the first instance you want to try to stiff people to whom the government owes money but who will probably keep working even if you don’t pay them. Take defense contractors, for example. If Robert Gates tells a bullet-making company that he can’t pay the Pentagon’s bills this month because Eric Cantor is being obstinate, but please keep sending bullets anyway, the bullet-makers aren’t going to leave our troops bullet-less. We just need to tell them to keep sending the invoices coming, and promise that all bills will be paid once Cantor relents. Hospitals, doctors, and other Medicare providers are the other low-hanging fruit here. Patients will continue to be treated, doctors will keep filing paperwork, and Kathleen Sebelius will keep reassuring people that they’ll be paid when the congressional gridlock is resolved.
Over time, of course, these tactics tend to run into limits. We may need to start paying people less than their full Social Security checks, mailing a partial benefit plus a note explaining that back benefits will be paid once congress lifts the debt ceiling. My intuition is that various government contractors, doctors, hospitals, etc. will put enough pressure on congress to break the deadlock before these Social Security notes need to start going out. But in political terms it’s a very winnable fight for the White House, and in substantive terms doing it this way should minimize impact on the nation’s credit.