Biden on Capitol Hill during the 2011 debt crisis.
Photo: Xinhua/eyevine/Redux
Barack Obama was fed up, but Joe Biden didn’t believe it.
It was the summer of 2011 and House Republicans seriously they would not negotiate any more and the US economy appeared to be on the verge of implosion thanks to the impending US debt default. With the Treasury running out of money to borrow, Republicans refused to raise the so-called debt ceiling without concessions. President Obama had held well-publicized crisis-prevention talks at the White House with congressional leaders and had gone back and forth with Republican House Speaker John Boehner to no avail.
But Vice President Biden — the old Senate veteran — had followed up his own ill-fated conversations with Capitol Hill honchos by arranging another round of secretive but intense proposition-trading with Mitch McConnell. And when it still all fell apart thanks to the demands of the right in the House, he could scarcely believe. According to Biden, there was almost always a deal to be made as long as the other side had the patience to listen.
A dozen years later, many Obama administration alumni still call that summer the low point of their first term. But now, with the intransigence of the GOP once again threatening debt ceiling failure, President Biden is singing a much harsher tune than his younger self. The very idea of negotiations, he insists, is out of the question.
This is not the product of a sudden turnaround, nor a Trump-era awakening, nor even some new fiscal paradigm. After all, the Republican-led Congress raised or suspended the debt ceiling four more times before Obama and Biden left office, and they did so without threatening the global economy. Biden’s change of heart is simpler: “Everybody knows that bankruptcy would be a terrible mistake that would cost the United States very dearly,” said UC Berkeley economist Carl Shapiro, who was a member of the Council of Economic Advisers Obama that fateful summer I “So it’s all about politics, not economics.” And as Jason Furman, who was deputy director of the National Economic Council during the crisis, said last week, “After what we’ve learned in 2011, we moved to a new way of approaching the debt limit.”
This year’s downgrade of the federal government’s credit rating, the collapse in consumer confidence and the sharp rise in interest rates are on the minds of the Biden White House, but so is the reality that we still have several months before we reach that point – time best used forcing Republicans to bend. Thus, Biden’s charges were unwavering in their assertion that dealing with the debt ceiling was unquestionably the job of Congress. The onus, they insist, is on Speaker Kevin McCarthy to find a solution. Their bet is that Republicans will feel the political pain as the White House makes its implicit case clearer: that the GOP is simply engaged in a cynical hostage-taking to blow up the economy when Democrats hold the White House.
It wasn’t too hard to do, as some Republicans in Congress have been open about drawing inspiration from the last time. “The debt ceiling has proven incredibly effective. In 2011, holding firm on the debt ceiling, the majority of the House of Representatives forced the passage of the Budget Control Act, the most significant restraint on federal spending in modern times,” Sen. Ted Cruz said last week, a statement that reminded many Democrats from his failed gambit to shut down the government in 2013 to try to force Obama to defund Obamacare. As one White House spokesman said in an email, “House Republicans plan to trigger a crisis that reverses the job growth we’re experiencing now, kills businesses and destroys 401(k)s unless they can cut Medicare and social security.”
All this is a far cry from when Obama saw a serious opportunity in the budget “Grand Bargain” with Boehner, both because of the perceived political advantages and because of the prospect of winning a bipartisan economic deal to boost his re-election campaign. At least initially, the negotiations included substantial proposals to shift revenue sources and cut welfare programs. They fell apart only when it became clear that Boehner could not get his restive members of the conference to agree to any tax increases at all, no matter how much Obama conceded on cuts. That left both parties with no choice but to delay real action, and Democrats, saddled with an agonizing budget, cut back.
Then “we saw some negotiating advantages and significant advantages in a big deal,” said Furman, who went on to serve as Obama’s chairman of the Council of Economic Advisers and now teaches at Harvard. Then the negotiations failed. “The lesson is that nothing good has come from this game on the brink.” This time around, Republicans are offering Biden only a debt ceiling increase and no concessions of their own, and are likely to ask for significant spending cuts.
Biden does have distinct political advantages over Obama since 2011. On the one hand, while his predecessor was still reeling from the midterms, Biden is fresh off a much better-than-expected midterm. The results left Republicans with a narrow margin in the House and therefore little room for maneuver. McCarthy bows to the whims of any member who wants to make his life difficult, a fact well known to the public since his embarrassing journey to the presidency became must-see television. Boehner’s inability to control his members, by comparison, came as a nasty surprise midway through the negotiations.
As a result, Biden seems certain that the GOP will take the blame for any opposition. And those around Biden now understand that McCarthy still has his own mountain to climb even to get his caucus to agree on what he wants from the battle ahead. Although he said he would not demand cuts to Medicare and Social Security, that did not stop the Biden White House from insisting publicly that McCarthy’s party would end up in this politically toxic place. Some of his members have gone down that path, and he may have no choice but to obey them.
Biden’s team is also moving away from a publicity tactic that failed 12 years ago. Then the Obama administration tried to increase the pressure on members of the Republican Party by scaring them and the public about the consequences of default. (Jerome Powell, the current Federal Reserve chairman who was out of government at the time, joined the effort with a presentation to Hill Republicans.) Yet, as Furman explained, such an effort can be read as an explanation of why Republicans need to raise the cap. of debt, but one could also interpret them as saying, “Well, if it’s that bad, you have to make some big concessions to avoid it.”
Yet none of the tactical changes address the ultimate variable: individual GOP rebels who see little incentive to align themselves with Biden or their leader, McCarthy. This explains the underlying sense of unease in Washington. It’s also why analysts and pundits are starting to revive a handful of unorthodox ideas for executive actions that Biden could ultimately take to escape the crisis, regardless of their uncertain political or short-term economic consequences.
Of course, something similar happened in 2011. That’s when the Treasury secretly began exploring the concept of prioritizing its debt payments to try to avoid the blow of bankruptcy. But no one took the talk of minting a $1 trillion platinum coin seriously, not least because then-Treasury Secretary Tim Geithner was puzzled, if not confused, the first time someone brought up the idea in a private meeting, according to an official who witnessed the exchange.
Then, as now, some negotiated solution always seemed the most plausible, if fraught with pitfalls, outcome.
“There’s an 80 percent chance the whole thing will be settled before the deadline,” Furman estimated. The deal would likely include “some fig leaves, like some commission to talk about how terrible the debt is,” or parallel negotiations on discretionary spending that Republicans could claim as a victory, he said.
Still, that math isn’t exactly comforting. The economist described the prospect of missing the deadline by a week or two as a “significant chance – perhaps even 20 percent.”