“[President Joe] Biden’s refusal to negotiate on the debt limit is informed by his first-hand experience in 2011 when he was Barack Obama’s vice president, and the administration made painful concessions to Republicans in an effort to avoid default,” reported the Associated Press Tuesday morning, adding, “Biden has told aides it’s an experience he refuses to repeat, not just for himself, but for future presidents.”
By Tuesday evening, Biden had met with House Speaker Kevin McCarthy and Senate Minority Leader Mitch McConnell, directed his staff to confer with their staff, and scheduled another meeting with Republican leaders for Friday. Afterward, Biden even floated a concession, telling reporters the Republican proposal to claw back unspent pandemic relief funds is “on the table.”
There is a word for this sort of activity: negotiation.
Why has Biden begun to talk without a commitment from McCarthy to pass an unconditional debt limit hike? Did Biden learn the lesson of 2011 or not?
For several weeks, the president had appeared to be in sync with Democratic insiders and progressive activists who characterized the 2011 talks between Obama and then-House Speaker John Boehner as disastrous. According to Harold Meyerson of The American Prospect, the resulting package of $2.1 trillion in spending cuts over 10 years “prolonged for years the recovery from the 2008 crash.” Dan Pfeiffer, the White House communications director during the Obama-Boehner parley, reflected in The New York Times that the deal “satisfied no one, left both sides angry about the result, and was damaging for the country. The United States credit rating was downgraded for the first time in the nation’s history, and borrowing costs for the government went up.”
Despite that lament and Biden’s own role in the 2011 talks, the president’s recent moves toward a negotiated settlement suggest a recognition that circumstances in 2023 don’t resemble 2011.
Back then, Obama himself was frustrated by the Republicans’ insistence on spending cuts. In the first volume of his memoir A Promised Land (which tells the story of his presidency through May 2011, before the debt limit negotiations were completed), the former president wrote, “Purely as a matter of economics, all of us in the White House thought that enacting the House GOP’s agenda of deep federal spending cuts would result in absolute disaster. Unemployment remained at about 9 percent.” Obama believed that long-term deficit reduction was necessary, but “for now, the best thing we could do to lower the deficit was to boost economic growth—and with aggregate demand as weak as it was, this meant more federal spending, not less.”
In 2023, Biden’s economic challenge is very different from Obama’s. In the spring and summer of 2011, America was digging out of the Great Recession of 2008 and 2009. Not only was unemployment still unacceptably high (though a tick down from its 10 percent peak in October 2009), but the economy shrank in the first quarter of 2011, stirring fears of a double-dip recession.
Today, America is enjoying record-low unemployment, the rate of which has been slashed nearly in half on Biden’s watch. A different problem vexes the current president: inflation, which has slowed but is still higher than when he came into office. The higher cost of living—amid positive economic growth, low unemployment, and higher wages—is the most viable explanation for Biden’s grim job approval numbers regarding the management of the economy. On that score, Biden has registered below 40 percent in almost every poll taken in recent months.
When inflation is hot, boosting aggregate demand through fiscal policy is not the primary concern of policy makers. The Federal Reserve has been doing the opposite: raising interest rates to reduce aggregate demand and relieve inflationary pressures.
At the same time, we don’t want the medicine to kill the patient. Interest rates set too high for too long curtails access to capital, can suffocate demand, and can tip us into recession. (After last week’s interest rate hike, and last month’s report of slowing economic growth in the first quarter of 2023, the central bank signaled it might not raise rates any further for the time being.)
Draconian spending cuts run the same risk. But not every cut is a draconian cut. As former Under Secretary of Commerce Robert Shapiro wrote for the Washington Monthly earlier this month, “with growth already slowing, substantial cuts could tip the economy into recession,” but the “economy can likely absorb modest spending cuts without tipping over, assuming no debt default.” Obama had reason to worry about any short-term spending cuts derailing the recovery from the Great Recession—and undermining his 2012 reelection bid. Biden can more easily afford some reductions. It’s hard to know exactly how much without hurting the economy or hindering his already daunting bid for a second term, but his endgame is not identical to Obama’s.
The political landscape is also different for House Republicans. Twelve years ago, Republicans were emboldened after the 2010 House midterm election netted them 63 seats. Candidates associated with the far-right “Tea Party,” which emerged in the early days of the Obama presidency and trafficked in hysterical rhetoric about rising debt, eagerly took credit for the Republican landslide. Three months after taking the oath of office in 2011, the House passed Representative Paul Ryan’s budget resolution, slashing spending by $6.2 trillion and putting Medicare on a path toward privatization. In May, with the debt limit deadline looming and pressure from his right flank building, Boehner confronted Obama with a specific demand: Not only should Congress link spending cuts to a debt limit increase, but the “cuts should also be greater than the accompanying increase in debt authority the president is given.”
Conventional wisdom is that today’s House Republican conference is more radical than ever, lowering the probability of an agreement to avert default. Surely we can identify individual House members who have blazed new frontiers of lunacy, such as Marjorie Taylor Greene. But those fringe voices don’t tell the whole story.
No red wave carried House Republicans in the 2022 midterm. They barely eked out a majority. While Boehner had a cushion of 24 seats, McCarthy has just four, three if Representative George Santos, facing federal fraud charges, were to leave his post. And those providing McCarthy with his narrow majority are the 18 GOP representatives in districts Biden won in 2020, not yesterday’s yahoos from the Tea Party-inspired House Freedom Caucus.
The lack of maneuvering room is shaping McCarthy’s posture. Far right figures like Representative Matt Gaetz have boasted about their influence, suggesting they have McCarthy in a “straitjacket.” But McCarthy has not been so easily restrained. The debt-limit bill he squeaked through the House this month was not the 10-year balanced budget he promised the Freedom Caucus in January, yet the Freedom Caucus swallowed it. Unlike the Ryan budget of 2011, McCarthy’s plan left the politically sensitive pillars of retirement security alone. Most tellingly, McCarthy did not characterize his bill as a take-it-or-default proposition. Unlike Boehner, the Californian did not specify what numeric condition had to be met for a debt limit increase to pass. He has not emulated Senator Ted Cruz, who, as a freshman in 2013, provoked a government shutdown and threatened a debt default if Obama would not defund the Affordable Care Act. In fact, McCarthy hasn’t made very many non-negotiable demands at all, only that some spending cuts must accompany a debt-limit increase.
The Cruz experience partly informs McCarthy’s vagueness. When you shut down the government in service of an unreasonable demand, you get hammered by public opinion. Poll after poll in the fall of 2013 showed Republicans bleeding support. Obama did not need to negotiate. Boehner and McConnell, neither big Cruz fans, used the dismal poll numbers to convince rank-and-file Republicans to surrender.
But the tenuous nature of his majority gives McCarthy further reason to skirt specifics. Boehner’s caucus had 34 members from Obama-won districts. But after Republicans became defined by Ryan’s Ayn Randian approach to the budget, about half of those members lost in 2012. Yet that was a price Boehner could pay without losing the gavel because his initial majority was so significant. McCarthy can’t afford to be as specific and aggressive; if he lost half of his Biden-district members in 2024, he would be the minority leader or, more likely, not a leader at all.
Biden and his team fully recognize how shaky McCarthy’s majority is, so they initially pushed the Biden-district Republicans to defy McCarthy and support a clean debt-limit increase. That noble effort, however, misread the Republican majority makers. They may not want Gaetz and Greene calling the shots, but neither do they wish to go rogue and fracture their home district coalitions.
Further, they have no reason to keep their distance from McCarthy. The speaker has not been a polarizing showboat like Cruz or House Speaker Newt Gingrich in the 1990s. Current polling suggests Biden and McCarthy would shoulder equal blame were the debt limit breached. That’s good enough to keep Republicans unified and complicate Biden’s ability to resist talks indefinitely. McCarthy’s hand may be weak, but he has played it well so far.
Does this mean Biden is about get rolled, à la Obama? Let’s not so quickly accept the narrative that Obama got rolled.
Yes, he accepted an August 2011 deal tying a debt-limit increase to about $2 trillion in spending cuts. But four months earlier, Obama proposed $2 trillion in spending cuts as part of a $4 trillion deficit reduction plan that included $1 trillion in revenue raisers. Remember, Obama did want deficit reduction, just not too much up front and not all in spending cuts.
Pfeiffer ties Obama’s decision to negotiate with Boehner on the debt limit to the downgrading of the federal government’s credit rating by Standard & Poor’s. In fact, the reason given by S&P was that the final deal’s amount of deficit reduction fell “short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” which had been previously set at $4 trillion. The statement lamented the erratic “political brinksmanship” but only because it sapped S&P’s confidence that a “broader fiscal consolidation plan” could be achieved.
The 2011 deal (forged by then-Vice President Biden and McConnell after a more grandiose compromise between Obama and Boehner fell through) did not include new revenue. It established a “supercommittee” tasked with forging a bipartisan deficit reduction plan by a hard deadline, or automatic cuts would dramatically befall military and social spending. Obama hoped the threat of military cuts would compel Republicans to accept some tax hikes, but that proved wishful thinking.
Still, despite Obama’s own fears, the cuts were not severe enough in the short run to derail his reelection, even though economic growth in 2012 was sluggish. Obama was aided by an earlier bipartisan agreement to extend the tax cuts enacted by his Republican predecessor. This deal at the time made progressives irate but boosted aggregate demand and helped stave off recession. That agreement expired at the end of 2012. It was followed by the so-called “fiscal cliff” tax deal, scoring Obama $600 billion in new revenue, more than half of the new revenue envisioned in his original deficit reduction plan. Then the following year’s debt limit deal (after Republicans caved) eased up on the automatic spending cuts.
The net result? While Obama’s critics often complain about the slow pace of his recovery, it was stable and sustained. Throughout his presidency, the unemployment rate dropped yearly from 10 percent to 4.7 percent. At the same time, the deficit as a percentage of GDP plunged from nearly 10 percent to almost 3 percent. Not exactly the worst case of getting rolled.
In turn, we need not presume Biden’s decision to negotiate will doom him politically or us economically. A deal with some modest spending cuts has the potential not only to avert a devastating debt default but also assist with the Fed’s attempts for a soft landing, just in time for Election Day 2024.