There was a fantastic piece in The Atlantic back in 2000 about psychiatrists dealing with people who wanted to have their limbs cut off because it would make them feel more like themselves to be amputees. The doctors’ big dilemma was whether or not to treat “apotemnophilia” as a diagnosable mental illness. If they engaged with it as a mental illness that existed and was recognized by the medical community, they ran the risk of encouraging more patients to identify with it.
I have the same feelings about engaging in a debate over whether or not breaching the debt ceiling matters. I don’t want it to become a debate that people have, because it will get coded as yet another partisan thing pundits fight about, and thus reduce the seriousness with which we should regard the situation. That, in turn, could make a default even more likely. This is a problem we face because of the he-said/she-said coverage of political topics in most U.S. media.
Right now, many House Tea Party members believe that a default is impossible because we can prioritize interest payments to go first. There have been really great pieces written lately about going through the debt ceiling and what it would mean for the economy; Kevin Roose, Greg Ip, and Matthew O’Brien have pieces that are particularly worth your time.
At a baseline, what they tell us is that even if that kind of prioritizing is possible, the legality is in doubt, we could still miss a payment, the economy would go into a recession from the sudden collapse of spending, and even flirting with this possibility has a bad effect on the economy. We also simply don’t know if prioritizing would work.
But I wanted to get a sense of what the right wing is hearing on this topic. In order to do that, I contacted three major conservative think tanks to ask for a comment from their experts “about the economic consequences of the government defaulting on its debt if it goes through the debt ceiling.” Here’s what I got.
The Heritage Foundation immediately responded with a quote from this post, stating, “Congress still has some time and options. Even if the debt limit is not raised by mid-October, Boccia writes, ‘the Treasury would not necessarily default on debt obligations,’ as it can ‘reasonably be expected to prioritize principal and interest payments on the national debt, protecting the full faith and credit of the United States above all other spending.’”
They added, “In other words, risk of a default is practically nil — unless the President and Treasury choose to default, an unprecedented and almost inconceivable course of action.”
In short, Heritage’s position is that if there’s a default, it will be because the president chooses to default.
The Cato Institute put me in touch with their senior fellow Dan Mitchell, who said, “I think the likelihood of an actual default is zero, or as close to zero as you can possibly get, for the simple reason that the Treasury Department has plenty of competent people who would somehow figure out how to prioritize payments.”
But wait, does the Obama administration have the legal authority to do something like that? “From what I understand. I’m an economist, not a lawyer. It’s a gray area.”
But isn’t it complicated to prioritize debt payments? “Interest on the debt is paid out of a different account than other government spending. So the argument that there’d be a lot of difficulty and challenges to prioritizing most payments is true, because it’s automatic.” However, “interest payments on the debt are apparently out of a different account, which presumably means that that it would be relatively simple to make sure that happens.”
But certainly it would cause some financial panic, right? “Will there be some economic repercussions? Financial markets I’m sure would be worried as we’d be in uncharted territory… Yes, I’m sure there’d be some anxiety. Especially if Bernanke or Lew or somebody like that is saying something that triggers concern, and spooks the markets.”