Are we heading for another Bush v Gore?

[drwex]

In a comment thread elsewhere I noted that I don't see a way for the politicians who have maneuvered themselves into the current corner to back down.

In short, I don't believe Boehner can walk back his demands to cut something out of the ACA. He managed to put down one revolt after the election last year and held his speaker post but he has to have his eye on the 2016 race now and cannot either be seen to back down or lose the support of the Tea Partiers who carry a great deal of weight in Republican presidential primaries.

I also don't see a rational out for the Democrats. Normally they could offer a concession and it would be done, but the Republicans have made clear that any opportunity to cut at Obamacare will be taken. So they'll get a cut now, and a cut with the debt ceiling and another cut with the next continuing resolution and so on. The Democrats cannot sign up for this death-of-a-thousand cuts because they know that any "compromise" now is not a true compromise.

This leaves us at an impasse and President Obama with three possible solutions, all of which (arguably) violate some laws. Think about it this way: Congress obliged the US to $100 of debt, but is only authorizing $80 of spending. Obama can:

A. Fail to pay some obligations. Quite likely illegal. There's language about "full faith and credit" in the Constitution itself. There are a lot of variations on this, including prioritization. The theory is that the US would pay all its debts... eventually. That's sometimes called "technical default" and might work for a corporation but it's illegal for a country.

B. Borrow money anyway. Quite likely illegal. The country's borrowing authority resides with Congress and is limited by statute. There's an argument that the "least illegal" thing Obama could do would be to borrow just exactly as much as is needed to pay obligations. Unfortunately, the law doesn't carry any provisions for this - it sets a hard limit, so any additional borrowing would be illegal.

C. Cut spending. Also quite likely illegal. The spending levels of the government are set by Congressional resolutions; the President has no legal power I can see to adjust them unilaterally. There's an argument popular in conservative circles that he can do this so long as the country's debt is paid, but I think the court decision that ruled the line-item veto unconstitutional applies here. The President simply is not allowed to pick and choose what to spend and what to cut.

Obama also can't "do nothing" to avoid illegality. Doing nothing turns into option A because debts come with due dates. Failing to pay those debts by those dates is a form of default. So unless Congress gets its collective head out of its collective anus and does something, Obama will shortly do something illegal.

There are two possible courses of action after that: let it go, or respond to it. Whichever way this goes there's going to be an aggrieved side and they'll want to take some action. I can see, for example, an impeachment being filed, though I doubt it would go anywhere. (I'm not enough of a Constitution wonk to know whether the Senate can refuse to take up an impeachment resolution sent over by the House, but I can guarantee you this Senate isn't going to get a majority to convict Obama of anything.)

A court case seems more likely. Determining standing (who has been injured by the President's action and thus has reason to seek redress) will be highly amusing but I imagine it'll get sorted out and then it will go fast track to SCOTUS, setting us up for a repeat of Bush v Gore.

This makes me more nervous than any of the actual illegal outcomes. I think that there's a move underway right now to price a two-year recession into the bond market, but I don't see any likelihood of serious consequences from either a default or extra borrowing. Some commenters have pointed out that a default will be expensive in that it requires pricing additional risk into US debt. That's true, but the price of US debt right now is at historic lows and it's also the go-to shelter in uncertain times. I am certain that the US will be able to fund its extra borrowing, though I hate to think what a 2% hit to growth will mean to actual real people.

Comments

[bluegargantua]

There's also that platinum coin thing which I think he should do. He's not borrowing money, he's just making more of it. He's meeting all his obligations both to outstanding debt and to Congressionally-mandated spending.

Done and done.

later
Tom

[drwex]

I talked about the platinum coin last time. Aside from the White House saying they won't do it, the problems include:
- this is acknowledged by everyone to be an odd interpretation of the statute, to say the least (which would almost certainly be challenged in court).
- there's no clear buyer for this coin. You can claim it has whatever value you want, but unless the market can show a transaction value it's no help as a funding mechanism.

[selenite.livejournal.com]

"C" is completely legal. The government pays some bills and the rest get put in the later pile. Interest payments on the debt are the only ones that have to be paid (the debt itself is not getting paid off any time soon, just rolled over). If the Defense Department says "Don't got it" to my employer they're just exercising their sovereign rights. The company will turn loose the lobbyists but the lawyers won't be suing. There's likely some clauses in the contracts for this kind of situation . . . but you can only sue the government over this kind of thing with the government's permission ("sovereign immunity" - a special law had to be passed waiving this to allow malpractice suits against military doctors).

Allowing the President to "pick and choose" spending is much more within his powers than the various employer waivers being issued for Obamacare.

This is also exactly the kind of "political question" the Supremes declare to not be their business. Otherwise they'll wind up writing and implementing the budgets themselves and there's no end to that.

So if Congress doesn't come to an agreement more and more bills are going to not be paid. Contractors, social security recipients, medicaid docs . . . the list will get long. Eventually one side or the other will take enough political heat to offer compromises. If it takes more than a couple of months I'll likely be laid off.

My personal prediction is that the healthcare.gov development team will finally produce a confidential report declaring they need N months to get the system ready for production and the president will offer that long a delay in Obamacare as his concession.

PS. The Senate can ignore impeachments.

[r-ness.livejournal.com]

This is also exactly the kind of "political question" the Supremes declare to not be their business. Otherwise they'll wind up writing and implementing the budgets themselves and there's no end to that.

This, exactly.

[drwex]

See below. I agree it's what the Court ought to do, but in Bush v Gore they did not. Thus my concern.

[drwex]

"C" is completely legal. The government pays some bills and the rest get put in the later pile

That's prioritization, which I listed under "A". Unfortunately, it's not legal. The government holds no debts that do not have repayment plans. They are obliged to pay D dollars to P payee on X date. Failing to do so, whether or not accompanied by a note that says "we'll pay you later" is technical default. Recently, California did this, issuing IOUs to a variety of creditors. That turns out to be legal in CA but is not legal under Federal law, insofar as I understand it. IANAL, but I read a lot of what lawyers write and I'm convinced by the "no" side here.

Interest payments on the debt are the only ones that have to be paid (the debt itself is not getting paid off any time soon, just rolled over).

That's false in two ways. All debts need to be paid, not just the national debt as securitized by US Treasury bonds. Please show me any language that supports the contrary position? Note that "rolled over" means that some bonds get paid and new bonds get issued. That addresses the problem of stabilizing the current debt but does not deal with, for example, interest on the debt not to mention the other obligations. Reread the "full faith and credit" part and tell me where it says "...but only for the national debt".

If the Defense Department says "Don't got it" to my employer they're just exercising their sovereign rights. The company will turn loose the lobbyists but the lawyers won't be suing.

That depends entirely on what and how the "don't got it" ends up being, Defense contractors have sued the government before, and won.

The doctrine of sovereign immunity is a judicial doctrine. As I noted under the discussion of "standing" there are issues to be sorted out, not least of which is whether courts would recognize sovereign immunity here. That's sufficiently far outside my area that I don't have an opinion on it.

Allowing the President to "pick and choose" spending is much more within his powers than the various employer waivers being issued for Obamacare.

There is an argument to be made that the ACA does not provide for the issuance of the kinds of waivers that HHS has been doing. However, courts have been notoriously deferential in regulatory issuances. There is very clear precedent (Clinton v. City of New York if you want to read it - I have) stating that Congress cannot transfer its budgetary decision authority to the President.

This is also exactly the kind of "political question" the Supremes declare to not be their business.

One hopes. However, I would have expected them to make that declaration in Bush v Gore and they did not, which is precisely why I am worried we are heading for a similar situation.

The Senate can ignore impeachments

I thought that was the case, too, but when I did my research I could not find definitive statements either way. See for example the NY Times (http://www.nytimes.com/learning/general/specials/impeachment/) which states that there are no uniform rules.

[dcltdw]

Huh. I see Obama's outs very differently. (I presume that Obama acts like a Democrat, but since he's actually center-right, this presumption is bad, so everything that follows is suspect.)

A and C validate the hostage-taking strategy of accomplishing the GOP goal of downsizing the gov't, which is a precedent Obama doesn't want to set.

So that leaves B. Obama can pivot on his "my lawyers have advised me that I have no options" and use either the 14th amendment or the platinum coin. This then has a couple of consequences:
* debt ceiling becomes irrelevant.
* GOP screams, starts impeachment proceedings. If it gets out of the House, it dies in the Senate.
* GOP screams, runs to SCOTUS to get a ruling. But in the meantime, debt ceiling is irrelevant, which means that world economy doesn't collapse.
* GOP screams, MSM faithfully reports that Democrats aren't compromising.

It's the first and third point that matters, I think: hostage-taking strategy fails, and the world does not burn while we set ourselves on fire. It's still bad for the US, but it's not catastrophic.

[drwex]

See above. The administration has already disavowed the platinum coin.

My personal opinion is that the Constitution ought to take precedence and the least-bad thing Obama can do is ignore the debt ceiling. However, I think raising the debt arbitrarily is also quite bad; he needs to issue specifically and only enough debt to pay existing obligations and maintain full faith and credit.

IMO, of course.

[dcltdw]

See above. The administration has already disavowed the platinum coin.

Are we talking past each other? We might be. I agree that Obama has disavowed this -- at present. But at 12:01am, he can simply state that he plans on doing exactly that as his new position. To me, this is totally valid: he's putting pressure on the GOP by stating that he doesn't have options, so now the GOP has to decide whether they'll call his bluff. (Not that I think the GOP is thinking of the situation that way.)

My personal opinion is [words]

*nod* Not my interpretation, but well, check out this lack of relevant knowledge I have. I think it could go down as [different words], but enh, now I'm really not contributing anything useful to the discussion. :)

[drwex]

I cannot think of a single instance in the last 5 years where the Administration has bluffed. It doesn't seem to be Obama's style. He could, of course, reverse himself. But I would bet large against it. Sudden reversals tend to upset the marketplace and right now that's a potentially big lever he has.

[dcltdw]

*nod* Both excellent points.

[r-ness.livejournal.com]

The courts generally decide this sort of issue is a political question to be decided by the other branches of government. Bush v. Gore isn't a good precedent for this.

[drwex]

Bush v Gore is a terrible precedent for just about everything. It's a case that never should have been heard, let alone decided, by the Supreme Court. But it was. Remember it only takes four justices to agree to hear a cert petition.

[r-ness.livejournal.com]

When I say that it isn't a good precedent, I mean that the situation is different.

What selenite says applies here. The Supreme Court is not interested in making the judiciary the branch that decides budgets. My view is that four justices will not be interested in grant a writ of certiorari on this.

People may claim that they're activist judges but if there's one thing they do hate it's getting stuck in the political weeds on a case that will recur annually.

[intuition-ist.livejournal.com]

there's one very large influencer here that you don't seem to be taking into account. congress does not operate in a vacuum. i know for a fact that a consortium of very influential businesspeople (CEOs and the like, of very large companies) went to Washington recently to "talk" to Congress. Corporations can bring a lot of pressure to bear on the various members of Congress. And corporations do *not* want anything like a default. I suspect that a great many conversations went like so: "WTF? Fix this shit, pronto, or you won't be a politician for very much longer." "Oh, oops."

[drwex]

See my reply above. I'm well aware that business is a traditional influencer in Washington, particularly for Republicans. However, the fact that the Chamber of Commerce, business's biggest lobbying arm and a machine-Republican stronghold for years came out against the shutdown before it happened had no effect. I don't think a handful of CEOs are going to have any more effect.

Between the extreme gerrymandering and the increasing influence of money donated by wealthy individuals the power of business has waned considerably, particularly when it comes to budging these most intransigent of Representatives. Even if more rational Republicans wanted to appease these business leaders they are powerless to do so. Did you notice how none of them would even defy Boehner by accepting Obama's open invitation to a White House discussion?

[r-ness.livejournal.com]

Actually, I think it's simpler than that. All the business interests have to say is, "Nice investment portfolio you've got there, Congressman. It would be a shame if the market dropped 30%, wouldn't it?"

John Cassidy posted about this yesterday in the New Yorker: http://www.newyorker.com/online/blogs/johncassidy/2013/10/why-america-could-use-a-stock-market-crash.html

I disagree with Cassidy's premise that this would be a good idea, but I agree that hitting legislators in the pocketbook would be very effective.

[drwex]

That's so many levels of fantasy I don't even know where to begin. Collusion, breach of fiduciary duty, etc. In the realm of "in my dreams I..." it's fine. As for having any relationship to current reality, no.

[r-ness.livejournal.com]

To be clear, I think Cassidy's not actually claiming that any individual will tell any individual Congressman that their personal portfolio will drop. At least, that's not what I'm reading the article to say:

But if the market fell by, say, three or four hundred points for three days in a row, and then lurched down another eight hundred points, or even a thousand points, the effect would be salutary.

...

One reason that we can be confident that a shift would come about is that, just five years ago, something pretty similar happened. In September, 2008, at the height of the post-Lehman financial crisis, an unlikely coalition of conservative Republicans and liberal Democrats voted down Hank Paulson’s TARP bank bailout. Wall Street promptly went lulu, dropping almost eight hundred points in a day, and that did the trick. Despite some bleating and harrumphing, echoes of which we hear to this day, the House promptly reversed course and voted for the seven-hundred-billion-dollar bill that the Bush Administration had proposed.

What I think he's saying is that a general drop in the market would focus legislators' minds.

Today it went the other way, so I suppose a carrot works also.

[r-ness.livejournal.com]

So that's why I don't think what Cassidy's saying is fantasy at all. There's been a slow slide in US equities the last few days: the politicians responded. Today there was a rally.

I am always skeptical of single-answer narratives when it comes to the markets but this is an interesting bit of synchronicity.

[minkrose]

I don't have anything to add, but as a meta-commentary, I'm grateful that you are willing to post insightful and well-thought-out writings on political topics, and that I can read the comments and see respectful dialogue. It's nice to have resources like this to engage with.

[drwex]

Why thank you. Brightened my entire day.