Author Danny Vinik

The Downward Path of Toxic Partisanship

Danny Vinik 1 Comment

Every time it seems like we’ve reached maximum partisanship, when the parties couldn’t distrust each other more and it seems like our system is on the brink of becoming unworkable, it always seems to get worse.

That’s my immediate takeaway from listening to the January 26, 2001 episode of This American Life that investigated the reaction to the 2001 election and the resulting Supreme Court case that gave George W. Bush the presidency. The show examines the election through a couple of different lenses including a look at the buildup of the Republican electoral machine, differing political views within a marriage and different legal opinions on the ensuring case.

In the opening,  host Ira Glass conducted  a quick interview with World War II veteran Robert Brown about how vitriolic politics was getting:

Ira Glass:Do you think politics are getting more bitter?

Robert Brown: Oh yes. Terribly so.

Ira Glass: And is that a bad thing? Is that worrisome?

Robert Brown: Very worrisome to me. I don’t know where it’s going to end. Fortunately, I don’t have to see too much more of it. You do. You’ll have to see a lot of it

If you showed me that interview today, I would have assumed it was conducted yesterday.

Following that, David Brock, the eventual founder of Media Matters for America, discussed the extreme attempts Republican organizations went to try to dig up dirt on President Clinton. Here’s Brock:

The radical right wasn’t pretending to be outraged at Clinton for dramatic effect; the rage was real, even when they knew they were stretching the facts to make their case.

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The Republicans saw their subsequent failure to remove Clinton from office as a historic defeat, but they didn’t blame themselves. In their minds, they had simply been outmaneuvered by the oily Clinton-Gore spin machine, tricky lawyers, and the liberal-leaning media. And they would do everything they could to ensure that nothing like this ever happened again.

Just replace Clinton’s name with Obama and that statement still rings as true today as it did in the 1990s. Brock continues on to discuss how any court case that went against Bush was considered “partisan and illegitimate” by Republican strategists. Newt Gingrich was a radical, right-wing legislator leading the charge against Clinton and Gore. Now, he’s a Republican host on CNN’s Crossfire. He’s no longer as partisan as was during the 1990s, but the fact that he is now considered the moderate wing of the Republican Party is incredible.

Ira Glass points out that even after the Supreme Court delivered its verdict, 40% of Americans still did not believe that Bush was the legitimate president. This was after an election in which Gore won the popular vote and required a Supreme Court case to decide. After this past election, which President Obama won easily with almost five million more votes and 332 electoral votes, almost half of Republican voters think that ACORN stole the election. This was a big victory for Democrats that no serious Republican would debate, yet nearly half of Republican voters doubt its validity! A quarter of them wanted their state to secede from the union.

The entire show was built upon the idea of how nasty and partisan politics has become. Yet, it has become much worse. Distrust between congressional leaders hit a new low this week. Polarization in Congress is at record levels. It’s amazing really. No matter how ugly it gets, our two parties can always find a way to get uglier.

 

Can Treasury Prioritize Interest Payments?

Danny Vinik 4 Comments

Reuters Felix Salmon seems to think it can:

The problem with it is that the government would still need to miss an interest payment on its Treasury securities, and there’s no way that it’s ever going to do that, whatever happens to the debt ceiling.

Think about it this way: if I roll over my debts, then my total debt does not actually increase. So if a T-bill is coming due today, then the government can pay it off in full, and issue a new T-bill, without increasing its total indebtedness.

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[W]ith Jack Lew (or anybody else, really) as Treasury secretary, you can be sure that debt service payments would be priority number one.

This only makes sense if the Treasury Department can choose which bills to pay and which not to. Imagine instead of just a T-bill is coming due today, there are millions of different payments coming in. Some are T-bills and the rest are made up by everything else the government pays for on a daily basis. When we breach the debt ceiling, the revenues coming in will not be enough to pay all of those bills. Salmon is suggesting that the federal government use those revenues to pay off all of the T-bills, freeing up more borrowing space and preventing the government from missing any payments. Treasury than could use the new borrowing space to pay off more of its bills, although it would still be unable to pay them all off. This is what conservatives mean when they say that the government can prioritize interest payments. This a pretty simple idea to make sure that the U.S. does not technically default on its debt, since defaulting requires missing an interest payment.

This plan assumes that Treasury has the technical capacity and legal authority to prioritize payments, though. If it cannot do that, then this entire idea falls apart. Treasury will pay whichever bills come in first. If a T-bill comes in when it has no more revenue and no more borrowing space, it would miss an interest payment. The U.S. government would default on its debt.

The question then is: can Treasury prioritize interest payments?

Implicit in Salmon’s piece is that it can, although he offers no evidence to support his belief. Back in 2011, he addressed the legality of prioritizing payments and came to the following conclusion:

As Treasury’s stated idea that it would simply pay bills as they came due, on a pari passu basis, and then stop paying when it ran out of money, it’s simply unthinkable. Treasury bonds and bills will get paid — they have to be. The bond markets know that, which is why they’re still pretty sanguine about this whole debt-ceiling issue.

Salmon seems to believe that there is absolutely no way Treasury would ever default on its obligations. Period. But while he offers a moderately convincing answer to whether prioritizing payments is legal, he doesn’t even try to answer whether Treasury has the technical ability to do so.

Last week, Slate’s Matt Yglesias and FT Alphaville’s Cardiff Garcia both pointed to an RBC Capital report that analyzed those technical abilities and concluded that Treasury wouldn’t be able to prioritize payments. Just today, a senior official at Treasury explicitly said that it “would be impossible to prioritize payments on debt.” Of course, the Treasury Department has every incentive to lie and convince Republican lawmakers that the department can do nothing if Congress doesn’t raise the debt ceiling. Nevertheless, it’s still meaningful.

That’s pretty good evidence to demonstrate that prioritizing debt payments is not possible. At the very least, it should make Salmon question his air-tight conviction that even if Congress refuses to raise the debt ceiling, Treasury has the technical capacity to ensure we don’t miss an interest payment. Given the evidence against it, that’s a big assumption to make.