Credit to Ted Cruz

September 25, 2013September 25, 2013Danny Vinik 1 Comment

As you’ve no doubt heard, Senator Ted Cruz (R-TX) is performing a pre-arraigned filibuster (I’m going to call it a filibuster) against the House passed continuing resolution that defunds Obamacare. Cruz has no chance of stopping the actual bill from moving forward since Republicans are not going to vote against cloture (allowing debate on the bill to proceed) and Majority Leader Harry Reid (D-NV) will strip the defunding language from it in an amendment that only needs 51 votes to pass (can’t be filibustered). Cruz’s filibuster here is entirely a political stunt. But that’s part of what makes it so impressive.

Many conservatives today are upset that the mainstream media isn’t paying as much attention to Cruz as it did to Wendy Davis’s filibuster in the Texas State Senate in June. As you may remember, Davis’s filibuster was futile too. She was able to run out the clock on that legislative session, but soon after, Governor Rick Perry (R-TX) called for another special legislative session and the bill passed anyways. Davis was soon a national liberal hero and is considering running for governor.

Here’s the thing: Cruz’s filibuster is more impressive than Davis’s.

Both Cruz and Davis were standing up for something they believed in, though they knew they were doomed to fail. They had grassroots supports and were entirely committed to their goals. However, Davis had the backing of the Democratic establishment and her Democratic colleagues. She didn’t risk alienating her fellow Democrats. On the contrary, it was certain to make her a national sensation.

The same is not true of Cruz. Before he began his filibuster, his Republican colleagues pleaded with him not to waste time and talk all night. They told him that doing so was give the House basically no time to pass a CR once the bill got back to them. It would hurt the party politically. Those senators have a point. That may happen, but Cruz ignored them anyways.

He’s also alienating Republican donors, something he’ll need if he runs for president in 2016. Those donors see Cruz’s filibuster as a cheap, parliamentary trick that accomplishes nothing and eventually puts the House in a tight stop.

Furthermore, his filibuster increases the chance of a government shutdown, as the party leadership pointed out to him. Like everyone, Cruz does not want a government shutdown, but he also knows this is his last chance to stop Obamacare. His filibuster will have no tangible accomplishments, but increases the risk of a fiscal crisis.

And despite all of that opposition – from the Republican establishment, Republican leadership and Republican donors – Cruz decided to filibuster the bill. He decided to risk alienating those key supporters to demonstrate his opposition to Obamacare. Say what you will about Cruz doing so just to gain political points, but he’s also risking a lot. He was already adored by the base. If he hadn’t performed this filibuster, the Tea Party may have been disappointed in him, but they wouldn’t have turned on him. He could’ve talked for a couple of hours, yielded the floor and allowed the vote on cloture to proceed. It wouldn’t have angered McConnell and donors and it would have made his point.But he decided to talk all night.

The base is going to LOVE this and rightfully so. Cruz really is bucking the establishment to stand up for what he believes in. Because of that, it’s unclear if his filibuster helps his presidential ambitions. It’s certainly not a good policy move. Liberals fell in love with Wendy Davis, but she never had to choose between siding with her colleagues and donors or standing up for what she believed in. Cruz had that choice and he chose to stick by his principles. He deserves credit for that.

Debt Ceiling Extortion

September 24, 2013Danny Vinik 7 Comments

I have no doubt that Congress will raise the debt ceiling. Republicans simply have no choice, but to accept defeat and move on. The United States government pays its bills. Period.

Beyond that though, it’s remarkable how idiotic this argument has become.

Republicans cannot hold the debt ceiling hostage.

In 2011, the last time debt ceiling brinksmanship almost caused an international financial crisis, Republicans were screaming that any debt ceiling increase must be offset by equal spending cuts. The entire goal was to reduce the deficit. While playing chicken with the debt ceiling was irresponsible then, there was at least a bit of logic in terms what Republicans were holding hostage and their ransom demands.

This time though, Republicans are holding the debt ceiling hostage while demanding a one-year delay in Obamacare. There is no connection between the two. Republicans are using the debt ceiling to extort the President. Worse, some Republicans seem ready to breach the debt ceiling if Obama does not back down and agrees to delay his signature legislative achievement. This is where things get absurd.

If we do breach the debt ceiling, it will likely have a significant, long-term negative impact on our debt. Rates on U.S. Treasury notes are lower than any other bond because investors are 100% confident that the U.S. will repay its creditors. The chance that a debtor doesn’t pay its creditor is called credit risk. Companies and countries close to bankruptcy have high credit risks. But the United States is never close to bankruptcy because the dollar is the world’s reserve currency and the U.S. can print its own money. It can always pay back its creditors. That’s why interest rates on Treasury bills are so low. But, if we breach the debt ceiling, that non-zero credit risk rises substantially. Suddenly, it becomes a very real possibility that the U.S. could not pay its creditors. Even if Treasury prioritizes bond payments so it does not technically default on its debts, the act of breaching the debt ceiling will likely shock investors and force them to increase the risk assessment of Treasury notes. That means considerably higher-interest rates for the U.S. in the long-term and thus higher interest payments.

In 2011, J.P. Morgan estimated that rates on Treasury Bills would rise 50 basis points if we breached the debt ceiling. They predicted that it in the long-term, that would add $75 billion per year to the deficit. Compare that to the sequester, which was the result of the 2011 debt ceiling deal. It cut spending by $1.1 trillion over 10 years. Breaching the debt ceiling would effectively undo nearly three-quarters of those cuts in the form of increased interest payments.

So, in 2011, Republicans were so concerned about the deficit that they took the debt ceiling hostage to extract $1.1 trillion in spending cuts.
Now, Republicans are so concerned about Obamacare that they’ve taken the debt ceiling hostage and risked adding $750 billion to our long-term debt.

If Republicans were so worried our long-term debt two years ago, why are they willing to undo most of those spending cuts this time? Does that seem like Republicans actually care about our debt and are using the debt ceiling as a principle to get our fiscal house under control? Or does it seem more like an irresponsible, reckless party risking a global financial collapse in order to extort the President?

That’s why President Obama and Senate Democrats cannot and will not negotiate on the debt ceiling. There is nothing principled about Republican arguments here. The debt ceiling is simply a mechanism to hold the President hostage and force his hand. That’s unacceptable. Enough with debt-ceiling histrionics. Our democracy does not work that way.

Republicans Are Trying To Undermine the EPA

September 24, 2013Danny Vinik Leave a comment

Republican Senators Jeff Flake (R-SC), John McCain (R-AZ), Deb Fischer (R-NE) and Dean Heller (R-NV) introduced legislation yesterday attempting to limit the EPA’s regulatory ability by restricting its spending. Last Friday, the agency rolled out new rules regarding the carbon dioxide emissions of new coal- and gas-fired plants. New gas plants will all likely be able to comply with the rules relatively easily due to existing technology. Coal-fired plants, however, will almost certainly be unable to comply with the new rules. That’s why Republicans immediately criticized the President for waging a “war on coal .” And as Slate’s Matt Yglesias notes, they’re right! That doesn’t mean that Obama shouldn’t be waging the war. On the contrary, he has to wage it, because Republicans won’t consider any legislation that will force companies to internalize the costs of their emissions. Those costs are a negative externality on the economy that the entire country pays for. Cap-and-trade or a carbon tax are both solutions to that market failure, but neither has a chance to pass Congress. So Obama and the EPA have taken it upon themselves to wage this war outside the realm of Congress.

Not surprisingly, Republicans don’t like that. Flake and his co-sponsors are attempting to fight back against the Administration by limiting the EPA’s regulatory power. Here’s the text of their bill:

A bill to require the Administrator of the Environmental Protection Agency to include in any proposed rule that limits greenhouse gas emissions and imposes increased costs on other Federal agencies an offset from funds available to the Administrator for all projected increased costs that the proposed rule would impose on other Federal agencies.

Got that? Me neither. In layman’s terms, the EPA’s new rule will increase the compliance and supervision costs of other federal agencies. Those agencies simply have more work to do. Flake et al. want the EPA to offset those costs within the EPA’s own budget.

A positive way at looking at this bill is that Republicans are so worried about other federal agencies’ ability to enforce limits on greenhouse gas emissions that they want the EPA to fund those additional regulatory costs. However, this is certainly not the case. Instead, Republicans are looking to slow down the rule-making progress and take money from other parts of the EPA’s budget.

Other agencies have their own budgets that they must work within and it’s not the EPA’s responsibility to cover the costs of additional regulation for them. When all of these agencies submit budget requests in the upcoming year, they will factor in the additional costs of implementing rules limiting greenhouse gas emissions. They will ask for larger budgets. This bill is trying to limit those budgets and force the EPA to choose between using its funds for rules on greenhouse gas emissions or use them on other regulatory issues. None of the co-sponsors care where the EPA would take the offsetting funds from. It doesn’t matter to them, because the entire goal is to undermine the agency.

Luckily, Democrats will never allow this bill to get far and it doesn’t have a chance to become law. But it’s yet another case where Republicans are attempting to use any legislative tactic to hamper federal agencies, without regard to what the agencies are actually doing.