Changing The Debt Ceiling Game

Below is David McAdams (an econ professor at Duke) "Game Changing Resolution to the Debt Ceiling"

In the business world, such self-restraint often takes the form of legal contracts. For example, those who want to learn about a new invention often sign a nondisclosure agreement, since otherwise the inventor would not trust them enough to share the idea. Politicians can’t make binding commitments as easily as businesspeople do. Nonetheless, the basic idea of changing a game for the better by limiting options could in fact help Republicans and Democrats fashion an effective exit strategy from the current debt-ceiling crisis.

Here’s one way that could happen. Imagine that, in the negotiations over this problem, the Republicans were to suggest making the next debt ceiling automatically self-extending if an agreed-upon debt-reduction target were met. Such a self-extension provision would allow both parties to avoid the next debt-ceiling crisis. (If the debt-reduction target wasn’t met, we would have to endure another debt-ceiling crisis.) The strategic benefits of tying your own hands are counterintuitive, and some fiscal conservatives will undoubtedly hate this idea. Yet limiting your own options can be essential to getting others to do what you want.

Constantly wielding the threat of a debt default has, ironically, undermined fiscal conservatives’ ability to extract meaningful concessions on the debt, as it has hardened Democrats’ resolve not to give in to such threats. The best way forward for those who care about controlling our nation’s debt isn’t to make more threats, but to give up the ability to conduct last-minute brinkmanship, in exchange for tying the next debt ceiling to a fixed target for debt reduction.

Since both parties will have negotiated this debt-reduction target, both will have an incentive to reach an agreement. There will still be fierce disagreement over how best to achieve the target, but at least they may finally start moving toward a common goal, of putting America on a sound fiscal footing.

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