Back in 2011, shortly after he had left a two-year stint in the White House serving as then–Vice President Joe Biden’s chief economic policy adviser, Jared Bernstein did what everyone of any notoriety in the early 2000s did: He started a blog.
“I’m going to try to do my part to improve the debate from the outside, to make sense out of the arguments, to go for truth over truthiness, to elevate the facts of the case in a way that’s respectful to all sides of the case,” he wrote in his inaugural post. “It’s also my hope that by dint of my recent experience at the White House, I can imbue this blog with a sense of political realism that’s sometimes missing in critical commentary.” Over the course of the next decade, Bernstein did just that, penning over 3,000 posts parsing the latest in economic news, until his blog was put on hiatus at the start of 2021, when he returned to the White House to serve on now-President Biden’s Council of Economic Advisers, or CEA, after spending last year as one of the key architects of Biden’s presidential campaign economic agenda.
For his second post in 2011, Bernstein took on a topic that was roiling Washington at the time: the refusal of Republicans in Congress to increase the debt ceiling. From his new perch outside the government, Biden’s former economist was unflinching. “I understand,” he wrote, “that some of those playing this game of globally high-stakes chicken are not anxious to support a higher debt ceiling.… But to drag this out unquestionably hurts our economy and our country far more than any political advantage members might gain from holding out. It’s time for elected officials to put the country first.”
Ten years later, that ol’ debt ceiling brinkmanship has returned with a vengeance. Unless the limit is raised soon, likely before the end of the month, the country will go into default, setting off what’s widely suspected to be a nuclear bomb–level event to the world economy. The Senate is airing a rerun of the will-they-won’t-they drama that engulfed the country earlier this fall, when the debt limit was almost breached before Mitch McConnell caved and gave Democrats enough votes to overcome a Republican filibuster and give the limit a small bump in early October. This time around, McConnell and Chuck Schumer are at least on better speaking terms. But Republicans are again saying they’ll filibuster an increase to the limit while Democrats refuse to pass an increase using reconciliation, and the clock is ticking ever closer to midnight without a clear plan for how Biden, Schumer, and Nancy Pelosi will get us out of this mess.
The era that Bernstein so rivetingly recalled has an important lesson for today’s lawmakers: While the country has never fully toppled over the edge of defaulting, both in 2011 and 2013 Republicans pushed things as far as they could go—and each time, the economy paid a harsh toll. In 2011, that resulted in the Budget Control Act, or BCA, which froze much of federal spending and created the (aggrandizingly named) Super Committee tasked with negotiating and agreeing upon a mix of tax increases and budget cuts—or else another set of across-the-board and hyperaustere spending caps, known as “sequestration,” would automatically go into effect, decreasing both military spending and social programs. Paul Ryan lauded the deal as a “huge cultural change” for Congress. Instead, it just legislated Chekhov’s gun into existence, with the not-so-Super Committee inevitably failing to prevent it from getting fired in the final act of the drama.
Afterward, sequestration caps loomed over Congress for a decade, regularly mucking up normal budgeting processes and limiting what the government could do. On his blog, Bernstein started a 32-part “Sequester Watch” series, detailing the real-world implications of these painful cuts. Then in 2013, Ted Cruz incited a rebellion in the Republican-controlled House, threatening the debt ceiling again, this time in order to extract changes in Obamacare. That led to a 16-day government shutdown, which ended the night before the debt limit would have forced a default. The economy took a $24 billion hit along the way.
If there was anything to be learned from the debt ceiling crises of the Obama era, it was plain and simple: Don’t trust Republicans to keep the nation from defaulting when a Democrat sits in the White House. Engaging in good-faith legislative debate just leads to meaningless fights that delay the inevitable and produce greater risk to the country. It’s better just to make the debt limit a nonissue, either by calmly passing an increase through available legislative tools or finding executive action to make it irrelevant.
Yet here we are again. Once again, a Democrat is in the White House, and we’re weeks away from the U.S. Treasury being unable to pay its bills, a point where the government would have to choose between paying social security recipients or the interest on U.S. loans.
“With shutdowns, as soon as the voters make clear who they blame, that side gives in. That could happen for the debt ceiling, it’s just people aren’t paying that close attention,” says Austan Goolsbee, the head of Obama’s CEA during the 2011 crises. “And unlike a shutdown, the government shuts down, and four weeks later voters blame Republicans. You can’t really do that with the debt ceiling. You hit the debt ceiling and default, and the whole world blows up.”
Today’s circumstances are quite different from the disaster of 2011. Most importantly, Democrats control both chambers of Congress, unlike in 2011, when an anti-government Tea Party wing of Republicans took power in the House dead set on budget cuts. “It was irresponsible,” Goolsbee says, “but the Republican approach was let’s use this threat to get things that we want.” At the same time, Obama was genuinely interested in striking a deal with Republicans to reduce the federal budget. Now, instead of uselessly seeking a “grand bargain” to reduce the social safety net as Obama did, Biden’s vision of bipartisan achievement was the bipartisan $1.2 trillion infrastructure law he signed that invests in public transit, incentivizes electric cars, and restructures the electrical grid to better move to renewable sources of energy (as well as “traditional” infrastructure of road and airports).
But so far, Democrats have been reticent to use their control of the executive and legislative branch to unilaterally dispense with the stupidity of the nation potentially defaulting on its debt. They’ve refused to include it as part of reconciliation, which would allow a debt ceiling increase with just Democratic votes in the Senate. And Joe Manchin and his moderate colleagues seem unwilling to nuke the filibuster. At the same time, Republicans are claiming they won’t help Democrats this go-round. “All I can tell you is the Democrats are going to have to deliver the votes,” Senate Minority Whip John Thune told Politico last week.
Meanwhile, Treasury Secretary Janet Yellen has warned the debt limit could expire by December 15, while the Bipartisan Policy Center predicts that moment could come between December 21 and January 28. “I cannot overstate how critical it is that Congress address this issue,” Yellen said in prepared remarks to the Senate last week. “America must pay its bills on time and in full. If we do not, we will eviscerate our current recovery. In a matter of days, the majority of Americans would suffer financial pain as critical payments like Social Security checks and military paychecks would not reach their bank accounts, and that would likely be followed by a deep recession.”
When I spoke to Bernstein last week, he said his “basic sensitivities and overarching views remain pretty much intact” from his old blogging days, but he struck a more moderate tone now that he’s in the president’s inner circle for negotiating economic policy. (He’s recently revived his blogging for the White House’s website but with more careful phrasings than in his freelancer days.) Still, even though he was optimistic a deal would be reached, he stressed that even to get close to a breach of the debt limit would be horrendous. “We have a very crowded and vital economic agenda that the president has laid out.… Even contemplating the debt ceiling breach has no place in that discussion,” he told me. “The key thing is to get it behind us as quickly as possible.”
There are several avenues for the executive branch to unilaterally end the debt ceiling, as explained by Vox’s Dylan Matthews in September—minting a $1 trillion coin, declaring it the “least illegal” option to issue new debt, among others. But Biden has shown no indication he’ll take that step. A Washington Post story from October said the administration had explored these sorts of executive actions to no avail. “Minting the coin is a silly idea, but it’s definitely less silly than defaulting,” Goolsbee told me. “First default in history caused by stupidity and obstinacy.”
Back in 2015, Bernstein agreed. While noting that White House lawyers were concerned about the legality of such a move, he still argued it was better than the alternative. “If it really came to default,” he wrote, “I’d mint the coin in a New York minute. Yes, the opposition would take legal action, but believe me, the White House is plenty lawyered up.” Now that he’s in the White House, he’s striking a different tone. “This is not the time for esoteric debates,” he told me when I asked about the platinum coin. Instead, he stressed that Republicans should let an increase pass through regular order rather than reconciliation, following the historical norm. “Optimally, both sides should hold hands and act responsibly,” he said. “Because obviously the debt is the result of decisions made by both parties.”
During the last scare in October, Fitch Ratings said America’s credit rating could be downgraded. (The last time that happened? In 2011, by S&P, amid that debt ceiling debacle.) A September analysis by Mark Zandi, chief economist at Moody’s Analytics, paints a grim picture. Zandi and his co-author, Bernard Yaros, say the shock to the economy would be “cataclysmic,” akin to the financial crisis, with stocks going down almost one-third, wiping out $15 trillion in household wealth along the way. On November 1, $80 billion in payments owed to members of the military, Social Security recipients, and veterans would have to be delayed. “In times past, lawmakers have taken strident warnings like these to heart and acted,” Zandi concluded about the last scare. “Let us hope they do so again. Soon.”
After Obama took his “shellacking” in the 2010 midterms, Democrats were in a dour mood in 2011 as John Boehner became speaker of the House and budget cuts of some sort seemed inevitable, despite the country still emerging from the Great Recession. Negotiations started over the summer, with Biden leading talks with congressional Republicans beginning in May. In the early days of summer, there was optimism, but that rosy outlook ended up backfiring for Democrats, as they refused to attack Republican plans publicly lest they disrupt the talks.
According to Goolsbee, he had put together two of his “whiteboard” videos—a series he did online for the White House—explaining the downsides of Republican proposals, but was told from above that he couldn’t release them. “Don’t do anything to minutely criticize the Republicans, because that would blow up the negotiations,” Goolsbee says he was told. He said it was one of the biggest mistakes of the negotiations, but is more optimistic now. “I think the Biden folks have learned that lesson, and that’s why President Biden is out on the stump,” he says. “They understand that having an outside strategy is just as important as a negotiation strategy.”
Ceding public ground, Goolsbee said the result was inevitable given the power imbalances. “It was a game of chicken where they had a clear goal: force cuts to social spending. What we learned from the debt ceiling negotiations, then, as well as all of the budget and tax fights, is that when one party is just going to oppose everything that a president is proposing, what’s the path of least resistance becomes more important.”
That path of least resistance ended up being the Budget Control Act and the automatic sequestration cuts. Negotiating some bipartisan solution to the budget crisis proved to be fruitless as Tea Party–adjacent Republicans on the committee refused to break Grover Norquist’s pledge not to increase taxes. “They could not do anything that violated that pledge, that was a nonstarter,” says Eli Zupnick, a former communications director for Senator Patty Murray, a Democrat on the Super Committee.
Those sequester cuts kicked in in early March 2013, and as Bernstein’s blog details, the effects were immediate. “This is a lousy approach to budgeting at both the micro and macro levels,” he said in the first “Sequester Watch” post, “but since it’s more of a slow bleed, it’s easy to forget about it. We will work to disallow that!”
He included a list of news stories detailing various initial cuts: furlough days at the IRS; reductions in Head Start enrollment, forcing districts to select eligible students via lottery; 140,000 families at risk of losing rental assistance. By August, 57,000 children lost access to Head Start, thanks to the sequester. The National Institutes of Health lost 5 percent of its budget that year—totaling $1.55 billion—setting back medical research. James Comey, then still the FBI director, said the agency had stopped training new agents. Meals on Wheels put people on waiting lists. The federal government laid off 40,000 people in the first four months of the sequester.
“God help us if we get a worldwide pandemic that emerges in the next five years,” the NIH director said, “which takes a long time to prepare a vaccine for.” (From the vantage of 2021, more investment in medical research sure would have been nice.)
“It certainly did put a damper on what the federal government could do, and it did it for 10 years,” says David Reich, a senior fellow at the Center on Budget and Policy Priorities. “You had binding caps running for 10 years, up to 2021.” Reich says the continual struggle to adjust to sequester caps derailed Congress, a major factor for why the government has often been funded by continuing resolutions rather than real budgets during recent years. Setting budget levels “five years in advance, ultimately 10 years in advance,” he says, “really reduces the federal government’s ability to address growing needs.”
Eventually, the sequester would be pared back to minor degrees, first in a deal between Murray and Paul Ryan in 2013 and then in subsequent modifications almost every two years. Still, that continual renegotiating distracted Congress from doing other work. “It was absolutely frustrating,” Zupnick says. And until the Trump era, these side deals around sequestration only offered partial relief. “The cumulative impact of seven years of austerity under the BCA’s tight annual appropriations caps and the sequestration cuts below those levels has been substantial,” CBPP’s Reich wrote in a 2017 report. “The 2017 non-defense funding level is 13 percent below the comparable 2010 level after adjusting for inflation and 18 percent below after adjusting for inflation and population growth.”
True to form, Republicans jeopardized the country’s credit again during the peak of sequestration cuts. While the 2013 debt ceiling stare-down between Obama and congressional Republicans had fewer ramifications than the sequester, it caused economic turmoil during a time when the country was still recovering from the Great Recession. In addition to the lost $24 billion in total economic output that S&P attributed to the shutdown, the Office of Management and Budget released a report shortly afterward that enumerated a host of the damages: 850,000 federal employees were furloughed per day at its peak, and 120,000 fewer private-sector jobs were created than there would have been otherwise at the time.
Unlike in 2013, this crisis didn’t end with Obama caving to a disastrous deal. Instead, Republicans claimed largely meaningless tinkerings to Obamacare as victory and ended the debt ceiling standoff. But by going until the very night before default, it should have taught the current and future Democratic occupants of the White House that Republicans in Congress aren’t as scared of ruining the country’s credit.
The Moody’s report from earlier this fall examining what would happen if America careened into a default scenario also explored how the political instability created in 2011 and 2013 shifted business behavior, contributing to the prolonged economic recovery following the Great Recession. “If not for this uncertainty,” the report states, “by mid-2015, real GDP would have been $180 billion, or more than 1 percent, higher; there would have been 1.2 million more jobs; and the unemployment rate would have been 0.7 percentage point lower.”
Looking back on that era, Zupnick, the former Murray aide who now works as a spokesperson for an anti-filibuster organization called Fix Our Senate, is pessimistic about Democrats finding solutions with Republicans in the Senate. “If you give Republicans the power to stop Democrats from governing, especially if that power is coming from the minority, they will weaponize it,” he says. “They’ll pretend they want to negotiate just to eat up time and burn the calendar.”
Goolsbee offered a similar analysis, saying he thinks part of McConnell’s game this time—especially since he’s not making any policy concession demands—is just to cause turmoil in order to derail Democratic negotiations on Biden’s Build Back Better reconciliation bill. “This is the worst situation it could possibly be. The Senate is equally divided, a Democrat is a president,” he told me, then corrected himself. “If Republicans take either the House or the Senate, it will get worse.”
The parallels to that era aren’t encouraging. Republicans briefly flirted with forcing a government shutdown last week over the Democratic president’s health policy, and are letting the debt limit teeter at a perilous economic moment as the country is still in the middle of a pandemic. “It should not be a political football,” Bernstein told me, “especially in an environment of uncertainty.”
Back in 2013, Bernstein, writing in The New York Times, captured the absurdity of the whole situation of shutdowns and sequestration. “I don’t see how we could learn much of anything from these episodes of budget dysfunction,” he wrote. “Beyond what most people already know—our political institutions are failing us—I fear they teach us nothing.” Eight years later and back in the White House, it seems few lessons have been learned—and catastrophe looms as a result.