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Who has the upper hand in the debt ceiling dispute?

John has written a very important post called “Memo to GOP: If Obama Won’t Compromise, Don’t Raise the Debt Ceiling.” His post adds significant clarity to the debt-ceiling discussion.

As to its conclusions, I think many of them are sound. Others, I’m not so sure about. Here’s the breakdown.

First, I wholeheartedly agree with John that “if Obama won’t compromise, don’t raise the debt ceiling.” The balance of terror in this showdown (what John calls the “default status” of the negotiation) clearly is not so one-sidedly in favor of the Democrats as to justify surrender. Indeed, it’s not clear that the balance of terror favors the Democrats at all.

So Obama must compromise to get the debt ceiling raised, and I strongly suspect that he will.

The question thus becomes: who has the natural upper-hand in the negotiations? Or as John puts it: which party does the default status — no debt ceiling increase — favor?

John concludes that it favors the Republicans and thus that they have the upper hand. Here is where I become skeptical.

In my view, the upper hand should be presumed to belong to the party that will suffer the least political damage if no compromise is reached. To be more precise, since this is essentially a zero sum political game, the upper hand should be presumed to belong to the party that will gain politically if the U.S. does not increase the debt ceiling.

In saying this, I don’t mean to discount entirely the pure policy consequences of not increasing the debt ceiling (that’s why I qualified my statements with the word “presumed”). As John says, the policy consequence of not raising the debt ceiling is something like a balanced budget amendment to the Constitution, which Republicans would like far more than Democrats.

But a constitutional amendment is forever (unless it involves prohibition). The faux balanced budget amendment produced by the debt ceiling could easily be overturned in the next election — and then some. (I recognize that, in reality, a compromise would be reached before the next election, but we are talking here about “default status,” which, as John says, assumes no deal).

So which political party would gain politically from the effects of not raising the debt ceiling? The best answer, I think, is that we don’t know for sure. That’s why both sides would be well-advised to compromise in earnest.

Meanwhile, here are some things to think about before concluding that Republicans would be the political winners.

First, Republicans are starting out at a disadvantage — the public already assigns to them the primary blame for the current “mess.” John rightly points out that the debate over the debt ceiling is different from the debt over the continuing resolution because the public is uneasy about the debt and wants to see something done about it. It’s also true that the public is uneasy about Obamacare. But I take John’s point and conclude from it that if the debt ceiling issue were arising in isolation, as it did in 2011, Republicans might well have the stronger position.

Unfortunately, I believe that the two issues — CR and debt ceiling — will tend to merge in the public’s mind. If so, the current narrative — that Republicans are mostly to blame — will hold, though perhaps weaken a bit.

Of course, it doesn’t matter too much who gets the blame if the debt ceiling isn’t raised and the consequences are seen as mild or benign. But I’m less confident than John that this would be the case.

To be sure, there would be no default and entitlement benefits would be paid. But the government would have to provide many fewer services than the public is accustomed to receiving. The public, most likely, would not be amused — just as it is not amused now by the current partial shutdown.

Would the fact that the missing services are contributing to debt reduction — as opposed to just a seemingly quixotic attack on Obamacare — help offset public frustration? Probably a little. But if the public really wanted such a large decrease in government services in the name of debt reduction, recent elections probably would have turned out differently.

We should also consider the effect of no debt ceiling increase on the economy as a whole. Economists disagree as to the probable nature of these effects. John presents evidence that market indicators don’t point to a catastrophe if the debt ceiling isn’t raised. A contrary view is presented here.

I’m not qualified to adjudicate this dispute. But I do know that the stock market has reacted badly to the partial shutdown and to news that the debt ceiling might not be raised. If the dispute carries over for a few months, it will likely be a very bumpy ride. The impression may well be left that the stalemate was responsible for a considerable amount of wealth destruction.

Some liberal economists predict that if the debt ceiling isn’t raised, the economy will go into a recession. I’m very skeptical about this claim. But I don’t doubt that, in the public mind, an economic downturn — if it occurred — would be blamed on the failure to raise the debt ceiling.

So, if Republicans are assigned most of the responsibility for the debt ceiling not being raised, they will assume a major share of the responsibility for any downturn. By contrast, Obama has carried the burden of that responsibility until recently.

Finally, we should consider the state of political play if the current disputes are resolved quickly. It tends, I think, to favor the Republicans.

Before the threat of a partial shutdown became apparent, few were talking about the Republicans losing the House. Now, we’re hearing such talk, backed up by at least some evidence. Before the partial shutdown, the conventional wisdom was that the Republicans could gain control of the Senate if things broke their way. Given the fairly substantial number of seats Republicans need to gain, would the GOP continue to be this well situated in the event of a prolonged stalemate over the CR and the debt ceiling? Again, I’m skeptical.

So yes, Republicans shouldn’t raise the debt ceiling if Obama won’t compromise. Yes, if/when Obama shows his willingness to compromise, the Republican bottom line position should not be formulated on the assumption that they are in a position of particular weakness. And yes, Republicans should act as if they have the upper hand.

But in my view, they shouldn’t believe with much confidence that they actually have it.

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