Playing a game of chicken with the economy on the line

Following up on item from last week, the Republican approach to the debt ceiling is evolving. More to the point, the GOP is starting to break up into distinct factions that are worth paying attention to.

One group, including the congressional Republican leadership, wants to raise the debt ceiling, and agrees that failure to do so would cause a disaster, but nevertheless intends to hold it hostage until Democrats pay a ransom. Another group, including many rank-and-file House Republicans, is convinced that concepts such as “default” and “full faith and credit” just aren’t a big deal.

And then there’s a third group, which is apparently growing in size, that would prefer to avoid national default, but just doesn’t believe it’s important to act anytime soon.

Top Republicans in Congress are advancing the idea that allowing the U.S. to default on its debts for a short time will be fairly harmless, and is a far better option than lifting the debt ceiling without simultaneous, dramatic spending cuts.

The new push comes just days after the country hit its statutory debt limit. In essence, the GOP is arming itself with a rationale to continue to oppose a debt ceiling hike, despite dire warning from economists, finance experts, and the Obama administration about the consequences of default.

This week, Sen. Pat Toomey (R-Pa.) and House Majority Leader Eric Cantor (R-Va.) have been pushing the notion that the United States shouldn’t really default, but if the country misses some payments on our international debts, well, no biggie. They’ve even found some former hedge-fund manager, Stanley Druckenmiller, to endorse the idea.

It’s very tempting to note all of the reasons the Toomey/Cantor argument is crazy, and would cause “seriously bad consequences,” but instead let’s consider the competing sides of the argument.

On the one hand, we have the Treasury Department, the Federal Reserve, nearly all sane economists, Wall Street executives, American business leaders, Ronald Reagan, and up until very recently, the top leaders of both the Democratic and Republican parties. This contingent believes the debt ceiling must be raised on time, or the consequences will likely be catastrophic.

On the other hand, we have conservative congressional Republicans who’ve been wrong about every major economic challenge for as long as anyone can remember, and Tea Party activists, who are generally in a state of perpetual confusion. This contingent believes raising the debt ceiling just isn’t a big deal, and there’s no real need to take the threat seriously. (A senior administration official noted last week of this group, “These are the kinds of people who get eaten by bears.”)

Here’s the question: how much are Americans willing to wager on this? If the first group is wrong, and policymakers scramble unnecessarily to raise a debt limit that’s really not especially important, nothing happens. It’s just the status quo and the political world moves on to the next fight.

If the second group is wrong, the economy falls off a cliff (again).

This doesn’t strike me as an especially tough call.