Wall Street should tell Kevin McCarthy to get back to business

by Jonathan Bernstein

House Speaker Kevin McCarthy went to New York on Monday to seek Wall Street’s support for his pursuit of a debt-ceiling deal tied to federal spending cuts. But financial industry pros know that attaching any strings to an increase in the borrowing limit is irresponsible. They should tell the speaker that they would be glad to support many Republican budget priorities later this year — but first, Republicans should accept an increase in the debt limit, without conditions, because that’s the only sure way to avoid the dire consequences of a default. 

To allow the U.S. government to continue paying its bills, Congress must pass a measure to raise the federal borrowing limit. That means Republicans and Democrats need to come to some sort of agreement. In a speech Monday at the New York Stock Exchange, McCarthy outlined demands including new restrictions on Medicaid benefits and other limits to federal spending. He also tried, unreasonably, to shift the blame for the looming disaster to President Joe Biden and the Democrats. 

(To be clear: There’s a long tradition of tacking debt limit increases onto a larger bill full of popular items, so that members of Congress can tell their constituents that they only voted for it because they “had” to. There’s nothing wrong with that. Nor would there be anything wrong with Republicans forcing Democrats to supply most, or even all, of the votes for passage — just as Republicans supplied the votes when Donald Trump was president and they had congressional majorities. Of course, there’s also no evidence at all that voters care about raising the debt limit or anything else about government debts and deficits.)  

Democrats aren’t going to agree to McCarthy’s harsh demands. Biden has said that he wants to raise the borrowing limit without conditions. Yet McCarthy seems determined to put his energy into a probably doomed attempt to unify his dysfunctional party and shore up his standing as House speaker. 

McCarthy’s alternatives — rounding up a majority of Republicans for a scaled down proposal or allowing a clean debt limit increase to pass with a handful of Republican votes, something he could do immediately — would risk a revolt by the extremists within his party who want confrontation, not compromise. 

Republicans have dragged the country into this morass even though both parties believe that the government should pay its bills, which is all that raising the debt limit allows. The GOP’s debt ceiling theatrics aren’t normal congressional bargaining, where people with different preferences try to strike a compromise in which each side gets something and gives up something. This is a hostage-taking, with Republicans threatening to harm the economy unless Democrats give them what they want. Worse, McCarthy is proposing only a one-year stopgap increase in the debt limit, meaning that if the Democrats surrender to GOP demands, there will be a fresh ransom to pay next spring. 

It’s also worth noting that McCarthy’s proposals on spending will push Republicans in vulnerable districts to vote for deep, unpopular cuts that won’t even wind up being enacted, just to appease GOP extremists in Congress who won’t back a final deal anyway. (Unless there actually is a government default, most of this will be ancient history by November 2024. But Democrats will be sure to run ads reminding voters about Republicans’ zeal for cuts to popular budget items, from farm programs to law enforcement to infrastructure.)  

The sad part of McCarthy’s maneuvering is that it only puts off the inevitable: Sooner or later, whether it happens before or after a default and the economic disruption it would cause, the debt limit will be lifted, and the extremists will oppose whatever deal is made and blame McCarthy for caving to Biden. If McCarthy were more skillful, he would probably confront that situation now instead of risking damaging the economy in hopes that it will all work out for him somehow. 

But no one should be complacent and assume that because Congress has always worked things out in the past, lawmakers will be able to figure something out this time. Over the last 30 years, House Republicans have managed to engineer extended government shutdowns three times, something that would have been almost unthinkable in earlier eras. While shutdowns are costly, even a brief default over the debt limit almost certainly would be far more damaging. 

Since McCarthy has asked Wall Streeters for their opinions, what they should tell him is simple: Cut it out. Just stop. Pass a clean extension of the debt limit. Avoid financial chaos. And save the fights over the budget until budget season. 

Jonathan Bernstein is a Bloomberg Opinion columnist covering politics and policy and a former professor of political science at the University of Texas at San Antonio and DePauw University.