What the debt limit and sharks have in common

Paul Krugman New York Times column yesterday was headlined “Think of Mitch McConnell as a New Jersey Shark.”

Whether or not you see anything shark-like about him, Senate Republican Leader McConnell is, of course, from Kentucky, not New Jersey.

Krugman was alluding to a hoary old anecdote about why Woodrow Wilson narrowly won reelection in 1916 over Republican Charles Evans Hughes while managing to lose his home state of New Jersey by a solid, almost landslide 12 percentage points, even though Wilson had easily carried New Jersey in his 1912 presidential election and before that had been overwhelmingly elected as governor.

At least according to legend, New Jersey punished its local boy president because it was unhappy about a rash of shark attacks on swimmers off New Jersey’s beaches who had been bitten and, in several cases, killed by shark attacks.

Obviously, Wilson didn’t cause the shark attacks, nor was it his job to prevent them as president. The idea of Krugman’s McConnell-shark headline is that when people are unhappy with the status quo, they are likely to punish incumbent candidates, whether or not the incumbent is really to blame.

In suggesting that McConnell is the shark in the current situation, Krugman referred to McConnell’s recent threat to block the Senate from raising the debt limit. The vote to raise the debt limit is subject to filibuster, which requires a supermajority to shut off. Democrats (including Vice President Kamala Harris casting a tie-breaking vote) have the votes to pass a bill, but not the 60 votes necessary to end a filibuster. McConnell seems determined to lead a filibuster against a debt limit increase, which would mean the United States could not issue debt to cover spending Democrats are preparing to authorize.

As Krugman explained:

The U.S. debt limit is a very peculiar institution, because when combined with the filibuster it gives a minority party the ability to undermine basic governance. You might think that once Congress has passed fiscal legislation — once it has passed bills that set spending levels and tax rates — that would be the end of the story. But if this duly enacted legislation leads to a budget deficit, which requires that the U.S. government issue debt, as few as 40 senators can then block the needed borrowing, creating a crisis.

And the crisis could be very severe. It’s not just that the federal government would run out of money, forcing curtailment of essential services. U.S. government debt plays an essential role in the global financial system because Treasury securities are used as collateral in financial transactions around the world. During the brief Covid-induced financial panic of March 2020 interest rates on short-term Treasuries actually went negative, as frightened investors piled into the safest assets they could think of.

Make U.S. debt unsafe — make the U.S. government an unreliable counterparty, because its ability to pay its bills is contingent on the whims of an irresponsible opposition party — and the disruption to world markets could be devastating.

So why would Republicans flirt with such an outcome? Because they’re completely ruthless — and they’ve learned the lesson of the New Jersey sharks.

He gets a little carried away with that last bit. The New Jersey sharks didn’t want to make any politician look bad. They just wanted to eat meat. But you get the idea. If McConnell carries through on his threat, Krugman explained: “Nobody has ever accused McConnell of being stupid. He knows quite well just how disastrous failing to raise the debt limit could be. But the disaster would occur on Biden’s watch. And from his point of view, that’s all good.”

Krugman’s full column on the topic is here.