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Guest Post by Jeremiah Jackson, Ph.D.

My previous writings on the status of the dollar as global reserve currency and the collapse of Silicon Valley Bank utilized textbook, intermediate-level economics to evaluate whether conservatives’ focus on the “current thing” was justified. My review of fiscal conservatives’ bugabears aroused controversy, yielding hundreds of (mostly critical) comments and hundreds of thousands of views. Although only time will tell who was right, it is worth reflecting on the fact that the fiscally conservative voters are sober, stoic, and far-sighted compared to their Congressional leadership. After all, banking and currency crises are common in the grand scheme of things and likely to wrack the U.S. in the distant future. On the other hand, Congressional Republicans’ fixation on the debt ceiling as a bargaining chip have yielded no clear victories for Republicans-as-a-whole, and especially not for the America First movement.

The debt ceiling emerged out of a compromise between fiscal conservatives’ fears and World War I militarists’ demands in 1917. Prior to this time, Congress approved individual Treasury debt issuances. The Second Liberty Act of 1917 transferred this authority to the U.S. Treasury. Recognizing the potential for abuse and abrogation of its responsibilities inherent in this transfer of authority to the Executive Branch, Congress introduced a debt ceiling to restrain the Treasury. War is the health of the state and, as one might guess, since World War I the debt ceiling has never been lowered (even when the federal government was running surpluses).

The first partisan conflict over the debt ceiling took place in 1995 between a Republican-controlled Congress led by Newt Gingrich and the Democratic-controlled Executive Branch led by Bill Clinton. Newt Gingrich cleverly engineered two government shutdowns, leading Bill Clinton to agree to some small tax and spending cuts as part of a commitment to a seven year balanced budget plan starting in 1997. In reality, the budget would be balanced for about four years before the U.S. slid into recession and global war. Although Republicans lost the Presidency and seats in the House, they would gain in the Senate in 1996, making this by far their most successful example of debt ceiling negotiations. It would be all downhill from here.

Debt ceiling negotiations in 2011, 2013, and 2019 yielded no clear economic or political benefits. The negotiations in 2011 and 2019 were followed by losses in both the House and Presidency. Perhaps the problem was that Republicans didn’t have the brinksmanship of Newt Gingrich? In fact, debt ceiling negotiations in 2013 and 2019 included government shut downs. Ted Cruz summarized the outcome of the 2013 shut down thusly:

“Unfortunately the Senate chose not to follow the House and in particular we saw real division among Senate Republicans. Had Senate Republicans united and supported House Republicans the outcome of this would have been very, very different.”

…

“This is a terrible deal. It embodies everything about the Washington establishment that frustrates the American people.”

Voters, perhaps correctly, blamed Republicans for the crisis, but the electoral consequences were (fortunately) limited. Donald Trump proved far more tenacious than prior Republicans. The 2019 debt ceiling negotiations, this time led by Donald Trump in a desperate attempt to get the Democrats to agree to a border wall, led to the longest government shut down in U.S. history. Trump had concrete demands that would have cost the Democrats little political capital. As one might guess from the current invasion, these negotiations did not yield a border wall.

So, if all previous efforts at debt ceiling politicking were unsuccessful, what has changed? If anything, things have gotten worse. There is no chance that current Congressional Republicans are willing to go as balls to the wall as former President Trump. Unlike in the 1995 – 1996 negotiations, Republicans do not have the element of surprise. Unlike both 2019 and 1995, there is not even an alternative plan that Republicans have put forth that Democrats can plausibly sign on to. The best they can hope for is to get Biden to agree to some minor infrastructure deregulation.

What can America First Republicans do? Currently, almost nothing. The House Freedom Caucus has not successfully brought concerns about immigration to the budget negotiations table. Biden has put forth a budget plan that pauses military spending growth, which, given the bottomless sinkhole of wasted money on the Ukraine conflict and other questionable military endeavors, America First Republicans should strongly consider. President Trump has an opportunity to exercise leadership by putting forth a set of demands that the House Freedom Caucus can make, but barring that, America First voters should wash their hands of this mess.

Jeremiah Jackson (pseudonym) is a former official of the US Department of Treasury.

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