How Harry Reid caused the debt-ceiling debacle

By Felix Salmon
July 26, 2011
Ezra Klein reckons I'm wrong about the tactical failures among Democrats which led to the current debt-ceiling fiasco and the probable loss of America's long-prized triple-A credit rating.  

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Ezra Klein reckons I’m wrong about the tactical failures among Democrats which led to the current debt-ceiling fiasco and the probable loss of America’s long-prized triple-A credit rating. The big failure, he says, wasn’t at Treasury, and wasn’t at the White House: it was in the Senate. Specifically, this is all the fault of Harry Reid.

The reason we’re hitting the debt ceiling, remember, is that the budget passed by both Republicans and Democrats forces us to do so. As a result, the obvious time and place to raise the debt ceiling is when you pass the budget. This isn’t just obvious now, it was obvious then. And the person who thought it was a bad idea? Harry Reid. Here’s Reid on December 8, 2010:

Reid also said that he would like to push off raising the debt ceiling until next year — when Republicans control the House, but that he has not discussed the matter yet with his caucus.

“Let the Republicans have some buy-in on the debt. They’re going to have a majority in the House,” said Reid. “I don’t think it should be when we have a heavily Democratic Senate, heavily Democratic House and a Democratic president.”

This has to rank very highly in the annals of tactical own-goals. As Ezra explains:

The election was over. Nancy Pelosi was still speaker of the House. Harry Reid still had 59 Democrats in the Senate. The Bush tax cuts were expiring. And Democrats had a perfectly popular and intuitive position: Extend the cuts for the middle class but, in a time of deficits and sacrifice, sunset the cuts for the rich.

Republicans, of course, didn’t want to allow the Bush tax cuts for the rich to expire. They were, in fact, desperate to preserve them. Which meant Democrats had the leverage.

What was Reid thinking? Basically, he didn’t want to give the Republicans a stick with which to beat the Democrats at the next election. Voting for debt-ceiling raises is never particularly popular, and it’s an easy and obvious electoral strategy for any Republican running against an incumbent Democrat to wheel out her vote on the debt ceiling.

But as any bond-market borrower knows, the most expensive money in the world is the money you haven’t raised yet. In the case of the debt ceiling, it had to get passed; there was no point in getting greedy. And I’m sure that Reid is rueing his decision right now. Forcing a majority-Republican House to vote to raise the debt ceiling might have seemed like a good idea at the time. But it’s not exactly the epitome of leadership. Indeed, it seems to have led the country straight into something which risks being downright catastrophic.

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