Mutually Assured Destruction: The Debt Limit Debates

More opinion from the City Journal

 

Homes and Moriarty at the Reichenbach Falls

What happens when the two sides of a dispute won’t surrender their positions, even though a failure to agree could destroy them both? Observing the current debate in Washington between the President and Democratically controlled Senate and the Republican dominated house, we are reminded of the old policy of “mutually assured destruction” which kept the USA and the USSR from blowing each other to smithereens during the dark days of the nuclear arms race. But there is a critical difference. In that case, the assumptions was neither side wanted to die enough to take the other side down with it. In the debt limit talks, we are not so sure.

Perhaps Sir Arthur Conan Doyle’s famous attempt to end his Sherlock Holmes series would be a better parallel.  At the end of “The Final Problem,” Holmes and his arch nemesis, Moriarty, having failed to best each other, plummeted to the bottom of the Reichenback Falls together.

It seems we may be on a similar path. In his address to the nation last night, President Obama blamed it on the Republicans. He would have us believe they are willing to take the nation over the Falls because they are controlled by irrational Tea Party masters. But is their position really irrational?

Those who have somehow forgotten our (very) recent history may want to consider this reminder from the City Journey opinion piece at the link above:

“After the initial TARP vote, the establishment spun the story, calling it not a bailout but a “rescue” and insisting that its purpose was to save jobs, not banks. What have Americans seen since? Financial firms whose bad decisions should have put them out of business have logged huge profits, while 7 million workers have gone missing from the economy. Such a stark disparity in outcome is absolutely the fault of establishment figures—from former Treasury secretary Hank Paulson through President Obama himself. No surprise that Americans digesting that experience now suspect that a debt-ceiling vote is another trick.”

We would add President Bush to the list of “establishment figures” who bear the blame for TARP since it originated with his administration, after all. But our current President is wrong to spin his opponent’s position as mere political posturing, and he is naive if he thinks the American people have so quickly forgotten how Washington betrayed us the last time we faced a financial disaster of this magnitude.

There is a reason–a very practical reason–why Tea Party Republicans have been inflexible in the debt ceiling talks thus far. Washington has proven it simply cannot be trusted to manage our economy unless inflexible spending limits are set in place, and Washington has proven it will never change in any fundamental way unless it has no other choice whatsoever. So the decision has been made by some freshmen Tea Party congressmen to hold the economy hostage, in hopes of forcing the radical changes we must make if we hope to survive. It is a desperate move, but it is not irrational.

But default on our sovereign debt is not really an option. The Democrats are correct. Default would indeed plunge the world’s economy into another financial crisis which could make the Great Recession look minor by comparison. (For details on why, see the City Journal piece.)

So like Holmes above the Falls, it seems we are damned if we compromise, and damned if we don’t. And that, of course, is the perfect time to pray for a miracle.

 
 

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