Is the debt ceiling stalemate just posturing — or is this time truly different?

The case for optimism vs. the case for pessimism on the chances of default, explained.

There have been few signs of progress in negotiations between President Joe Biden and the House GOP over raising the debt ceiling this week, as the “X-date” at which the government will be unable to pay its bills, and the accompanying prospect of economic turmoil, draws nearer.

And Republicans’ public comments suggest they’re digging in. House Speaker Kevin McCarthy has been insisting this week that the only “concession” House Republicans will offer to Democrats is raising the debt ceiling — hardly a concession. Rep. Patrick McHenry (R-NC), a GOP negotiator, said he’s “not yet an optimist on us getting this resolved.”

And on Wednesday afternoon, House leaders said members could leave Washington for Memorial Day weekend, suggesting a deal isn’t imminent. (McCarthy has also said that he’ll abide by a House rule saying the chamber must wait 72 hours after a bill is introduced before voting on it.)

If you take this at face value, it sounds terrifying. But should you?

The markets evidently think you shouldn’t. Stock traders’ apparent view is that this is all just posturing, and that a deal will be struck.

Because that’s how it always goes with debt ceiling brinkmanship. “Debt Ceiling Drama is Political Theater, Not an Existential Crisis,” a headline in the financial website TheStreet reads. In Washington, too, it’s hard to find many who will outright predict a default is the likely outcome.

That’s because, in a high-stakes, adversarial negotiation with an impending deadline, it’s common for both sides to dig in until the last minute, trying to drive as hard a bargain as possible. (Take Fox’s settlement with Dominion, reached just as a trial in the defamation lawsuit the voting machine company brought against the network was about to begin.)

Capitol Hill watchers frequently see this dynamic play out in Congress, where negotiators often loudly insist there’s no deal until, at the end of a prolonged process, one suddenly materializes:

A default wouldn’t really be in anyone’s interest. Kevin McCarthy doesn’t want a default. Senate Minority Leader Mitch McConnell doesn’t want a default. Rich Republican donors don’t want a default that would likely cause economic chaos and make them a lot poorer.

What Republicans want is a deal. President Biden wants a deal too. So, this thinking goes, probably, they’ll come up with one.

There’s also a more pessimistic take.

The pessimists have a darker view about the House GOP

The key difference between optimists and pessimists is that the optimists have more faith in the competence and reasonableness of Speaker McCarthy, and the rationality of the GOP generally.

When House Republicans make absurd demands, the optimists interpret that as tough negotiating. When McCarthy sounds unreasonable in public, the optimists think he’s just trying to sound tough for the GOP base, to convince them he’s fighting as hard as he can — but that he actually really is, in good faith, seeking a deal. They think the adults are in charge of the House GOP.

The pessimists, who are generally on the left, would suggest a few points in response.

1) The House GOP is so extreme that McCarthy won’t be able to lock down the votes for a reasonable deal: Back when McCarthy was trying to lock down the votes for speaker, he had to bow and scrape to get the votes he needed from the hard right. One concession he made was a rules change that effectively makes it easier to force a no-confidence vote in his leadership.

To avoid that, some believe, he’ll pander even more to the far right, making sure to get their blessing on any deal. But, the argument goes, these members of Congress are so extreme and untethered from political reality that they’ll never agree to anything realistic — anything Democrats have a chance of accepting.

The optimists’ response to this would be to point out that McCarthy does not actually need the votes of the far right (any bipartisan deal is expected to lose votes from the far right and far left), and that he’d just ideally like to keep their grumbling to a minimum to prevent a revolt against his speakership. Perhaps he can do this by convincing them he fought hard for their priorities.

2) Republicans have an incentive to crash the economy and hurt Biden’s presidency: An even darker theory is that the GOP actually has no political incentive to avoid a default — indeed, they may outright want an economic crisis, assuming that Biden as the incumbent president will get the blame, and the GOP will benefit in the 2024 elections.

The optimists would respond that it’s hardly inevitable voters would blame Biden (Republican extremism, it’s now clear, did indeed hurt certain candidates in the 2022 midterms), that Republican donors’ pocketbooks would also be hurt by a market panic, and just that this is too much of an evil caricature of the other party.

3) Miscalculation or bungling could lead to a default no one wants: In adversarial negotiations with a deadline, everyone wants to signal maximal toughness until the last minute, when things suddenly get real.

But one complication about the current situation is it doesn’t seem the parties know and agree on exactly when the “X-date” — the crisis date — is. Treasury Secretary Janet Yellen has claimed it is “potentially as early as June 1,” but that statement is ambiguous, and some outside analysts think it will be later in June. If Republicans don’t have an accurate view of when it is, they could keep posturing until it’s too late.

More prosaically, negotiations could collapse because one side “misreads” the other, holding out for more concessions than are in the offing. This is the “incompetence scenario” for a default. And if you think McCarthy is an incompetent bungler, you may view this as disturbingly likely.

The optimistic take here would be that if a default was really truly just days away, the Biden administration would surely make that information known. Additionally, if it looks like default might really happen, an eventual market panic could bring the parties back to the table. Finally, McCarthy has been a whole lot more competent at managing his conference this year than many expected. (Then again, he hasn’t had to sell them on an unpalatable deal just yet.)

Disaster may be unlikely — but unlikely things can happen

Overall, I think the optimists’ case is more convincing than the pessimists’. I think things will probably be fine.

But how certain am I of that? What are the odds that one of the pessimistic scenarios turns out to be right? Is there a 1 percent chance of disaster? 5 percent? 10 percent? I’m hesitant to put an exact number on it.

More to the point, the severe consequences of default are disturbing enough that even a low-probability chance they’ll actually happen is disquieting. Unlikely things sometimes happen!

Which is why it would be nice if Republicans dispensed with this debt ceiling nonsense and negotiated over spending without playing chicken with the global economy. But I’m not holding my breath for that.