Opinion: The case of the disappearing debt disaster

Photo/Kenny Holston/The New York Times / House Speaker Kevin McCarthy, R-California, after the House passed the debt limit bill, on Capitol Hill in Washington, May 31, 2023. Republicans yielded on raising the debt limit and averting a U.S. default because they really do not care about the budget deficit or fiscal policy, writes the New York Times columnist Paul Krugman.

Just a few days ago, it looked as if GOP extremism might set off a global financial crisis. The U.S. debt ceiling — which allows Congress to determine spending and revenue, then refuse to permit borrowing to cover the difference — seemed to give Republicans, who control the House, access to a financial doomsday machine: By refusing to raise the debt limit they could provoke a U.S. default that, given the key role played by U.S. debt in the world financial system, could have been catastrophic.

That doomsday machine, in turn, seemed to give Republicans far more power than a party narrowly controlling one house of Congress should possess. Would they use that power to demolish President Joe Biden's accomplishments?

In fact, they barely scratched Biden's paint. And the mystery is why.

Like many — I think most — observers, I didn't see this coming. In the spring Republicans seemed to be converging on demands for harsh spending cuts, especially to Medicaid. The Biden administration was counting on self-proclaimed centrists and business groups to lean on Republicans to back off; they didn't. And publicly at least, Biden officials repeatedly rejected all possible end runs around the debt ceiling. Republicans seemed to be in a strong bargaining position.

Yet in the end we got some spending caps that would probably have happened even without the attempt to take the economy hostage, since "discretionary" spending would have had to pass the House in any case. We got an extension of work requirements in the food stamp program for Americans in their 50s, which will cause some loss of coverage — not because they refuse to work, but because they'll be stymied by extra red tape.

And we got a side agreement to cut $20 billion from the $80 billion in additional funding for the IRS that was included in the Inflation Reduction Act. But that $80 billion was for a decade. In practice, efforts to crack down on wealthy tax evaders will probably be little changed in the next few years, and the IRS will simply come back for more money later.

Overall, the administration made hardly any major concessions; this debt standoff ended up being far less consequential than the debt ceiling crisis of 2011.

So how did Biden, whom right-wingers constantly deride as senile and incompetent despite a series of remarkable legislative achievements, pull this off?

Eventually we may get a blow-by-blow account of how the debt negotiations went down. Until then, it's worth noting several broader trends in the political environment that probably strengthened Biden's hand.

First, Democrats are no longer intimidated by deficit scolds. Back in 2011, the Obama administration seemed eager to win approval from a Beltway establishment dominated by Very Serious People who insisted that debt and deficits — as opposed to, say, persistent high unemployment — were the most crucial issue facing the nation. President Barack Obama came very close to agreeing to a bargain that would have raised the age of Medicare eligibility.

These days Democrats don't seem to care much about the deficit scolds; they'll probably care even less given the craven behavior of prominent groups during the debt confrontation.

Second, Republicans don't actually care about the budget deficit. Arguably they never did. But a dozen years ago many in the media and the political establishment took their fiscal posturing at face value. These days their true lack of concern is out in the open, so it's hard to find a commentator who seriously believes that a party seeking to prevent a crackdown on tax evasion cares about debt.

Third, the Republican Party has largely backed off on its push to drastically shrink government. We've come a long way from 2005, when President George W. Bush tried to privatize Social Security. These days even hard-right budget proposals tend to exempt Social Security and Medicare, and I believe that Republicans are beginning to realize that Medicaid has also become an extremely popular program.

Coming next: The realization that even white, rural, very MAGA areas like, say, Kentucky's 5th Congressional District have become deeply dependent on food stamps.

Indeed, it's hard to avoid the sense that the GOP has, in general, lost interest in fiscal policy. Apparatchiks at right-wing think tanks still inveigh against the evils of big government, and the donor class is as opposed as ever to paying taxes. But all the real passion on the right now seems to revolve around social issues like ending abortion rights and expunging any mention of racism from history classes.

In a way it's kind of funny. Critics of Democratic politics used to berate activists for focusing on social issues while allowing Republicans to dictate the economic agenda. Now Republicans are waging war on the Disney corporation while the Biden administration establishes large-scale industrial policy to fight climate change.

So what happened on the debt negotiations? Maybe it came down to this: Kevin McCarthy wasn't willing to blow up the economy to extract policy concessions because he's the leader of a party that no longer cares about policy.

The New York Times