Biden Signs Off on Restarting Student Debt. Why?

Are Democrats just terrible negotiators? The real reason Party leaders do the debt ceiling dance.

Just two smiling happy Americans (Photo: Doug Mills/The New York Times)

For those on the left … too many of us have been interested in defending programs the way they were written in 1938.”
—Barack Obama, 2006

“I’m glad we won the race in New York, but I hope the Democrats don’t use it as an excuse to do nothing on Medicare.”
—Bill Clinton to Paul Ryan in a caught-on-tape moment, 2011

“The real market for political parties is defined by major investors, who generally have good and clear reason for investing to control the state. ... Blocs of major investors define the core of political parties and are responsible for most of the signals the party sends to the electorate.”
—Thomas Ferguson, from his book Golden Rule

Student debt, a weight born by all of society, is back to burden us. Every dollar spent paying these massive loans is not spent in the economy. Every millennial who went to college seeking a better life — a life promised, despite the globalized labor economy, by Democrats for decades — must now re-shoulder the cross of life-changing, soul-crushing debt (my emphasis below).

The [debt] deal spells out when repayments resume: 60 days after June 30. If the legislation passes, that means all federal student loan borrowers will be expected to start making payments again after August 29. Their loans will accrue interest then as well.

And this time, it looks like it would really be the end: The debt deal prohibits the education secretary from extending the pause on federal student loan payments without congressional approval.

The end of this pause will affect some 43 million borrowers who, collectively, owe over a trillion in student loan debt.

But, in effect, the new rules won't change much about the current loan landscape. Even before Biden and McCarthy reached a deal, the Department of Education was readying the return to repayment.

Julia Rock, writing for LeverNews, describes it this way (my emphasis below):

Student loan payments have been on pause for the past three years, as part of a COVID-era relief program initiated by former President Donald Trump. In one of a series of concessions to Republicans during the recent debt ceiling standoff, Biden must restart student loan payments by the end of this summer.

That means more than 40 million Americans will be once again crushed by debt, but it also strips Biden of his best tool to defend his broader student debt cancellation program: delay. His order to cancel up to $20,000 in debt for federal borrowers is expected to be struck down by the Supreme Court any day now — making it an inopportune moment for Biden to relinquish his power to extend the payment pause.

So Biden and Democrat leaders gave away the last tool they had for helping these people. What else did they give away?

Democrats could have avoided this scenario. But they refused to get rid of the debt ceiling, an arbitrary limit on government borrowing, when they controlled the House and Senate during the first two years of Biden’s term. Then, instead of bypassing it unilaterally using executive authority, Biden chose to negotiate with Republicans, making major concessions — including his own power to keep the student loan payment pause in place — to raise the ceiling for just two years. In doing so, Biden may be cementing his decades-long legacy as a defender of student debt.

Note the sentence “But they refused to get rid of the debt ceiling … when they controlled the House and Senate during the first two years of Biden’s term.”

Not only did they refuse to do eliminate this threat when they controlled both Congress and the White House, they refused to eliminate it yesterday, or the day before, or any day since announcing “no-negotiations” with Speaker McCarthy, when either of two (or more) routes to ending the blackmail forever were available.

Route One: The Fourteenth Amendment

One route for ending the Republican blackmail uses the much-discussed Fourteenth Amendment. That Amendment states in part:

Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

For many analysts, this means that any default on federal debt is unconstitutional. But that interpretation is in dispute. From Adam Levitin (courtesy Yves Smith):

The Public Debt Clause is a prohibition on disputing the validity of US debt obligations--that is[,] disputing whether they are legitimately owed. There's not a word in the 14th Amendment about default. … It's not a prohibition on defaulting because such a prohibition would be meaningless. …[P]rohibiting default doesn't get creditors anything. Prohibiting disavowal does because it means that creditors retain their right to be paid.

Two points to make about this. First, questioning the “validity” of federal debt does indeed have this common sense meaning. So this interpretation could be entirely right on its face.

Second, even if this interpretation is wrong, why would a Republican judge or a right-wing Supreme Court not use it to force Biden to accede to Republican demands? That side uses every tool it has. This argument is an excellent tool.

Route Two: Articles I and II

Levitin instead argues that a case based on Article 1 (and Article II) is much more airtight. In a piece for The American Prospect, Levitin writes:

The Constitution gives Congress the power to make contracts. It does not give Congress the power to renege on these contracts. Once Congress has committed the United States to perform a promise, the president’s duty to “take Care that the Laws be faithfully executed” requires the executive branch to perform. If performance requires payment and Congress has appropriated the funds, Treasury is bound to pay. If Congress does not raise enough revenue to pay for appropriated commitments, then the president’s only choice is to borrow to fill the gap. Each time Congress authorizes a contract and appropriates funds to perform it, it necessarily authorizes borrowing to the extent that Treasury funds fall short. (emphasis added)

To put it more succinctly, “The Constitution [in Article I] gives Congress the power to make contracts. It does not give Congress the power to renege on these contracts.”

In a related piece, Levitin writes:

[Various commentators] are right to argue that the debt limit is unconstitutional, but the constitutional problem isn't the 14th Amendment. Instead, it's Article I of the Constitution, namely Congress's power to enter into contracts. … Congress has a power to make binding commitments for the United States and the President is constitutionally obligated to perform those commitments. If the Treasury lacks the funds, then the President must borrow. No specific authorization is needed. Instead, it is implicit every time Congress appropriates funds to perform a binding commitment. (emphasis added)

As for the president, his duty to “take Care that the Laws be faithfully executed” is enshrined in Article II, which contains exactly that text in Section 3.

As I wrote above, this seems an airtight argument. Yet each of these routes is a road not taken. Why?

‘A Very Poor Negotiator’

During the early Obama years, Democratic Party voters and supporters, appalled at the multiple surrenders by Obama to Republicans, asked, in essence, “Why is Obama so bad at negotiating?”

Here for example is the 2011 version of Krystal Ball writing in The Atlantic:

As the dust settles on the debt-ceiling fiasco, liberals are left scratching their heads and wondering what the heck happened. Public opinion is overwhelmingly in favor of a balanced approach to deficit reduction and 67 percent of Americans believe we should be focusing on the economy rather than the deficit. With public opinion in our favor and a few fail-safe constitutional options in our back pocket, how did this showdown end in complete and utter surrender?

And on that year’s debt ceiling crisis:

First the president offered a plan that included $4 trillion in deficit reduction, with cuts to Medicare, Medicaid, and Social Security all on the table in exchange for a few hundred billion in revenue from closing corporate tax loopholes. This initial proposal was far to the right of what his own Bipartisan Fiscal Commission proposed. When this "grand bargain" was shot down and the president ruled out using the 14th Amendment of the Constitution to unilaterally increase the debt ceiling, there was nothing to do but surrender.

Need more examples? Krystal Ball described how Obama caved on the health care debate, the Bush Tax Cuts negotiation and the government shutdown crisis. She concludes that “the president's idealism has made him a very poor negotiator” and credits his “lack of cynicism” for this failure.

We now know, however, that President Obama wanted a “Grand Bargain” all along, with cuts to social programs as part of the package. He wasn’t a poor negotiator at all. His “idealism” wasn’t holding him back. He simply had goals we wouldn’t admit he had. (Krystal Ball has long since learned this lesson.)

Even Bill Black, in a 2012 Huffington Post piece that’s heavily critical of Obama’s “grand bargain,” makes similar excuses for him:

Republicans, however, have now found a fifth column within the Democratic Party who they hope will open the door to attacking the safety net. This would provide the political cover that Republicans could use to unravel fully the safety net.

The Republican Party's approach to convincing Obama to commit the Great Betrayal cleverly exploits three human weaknesses. First, Obama wants to be considered a "centrist." Second, Obama yearns to be considered "bipartisan." These first two weaknesses are forms of vanity.

The third weakness that the Republicans seek to exploit is fear ... The Great Betrayal can only occur if Obama succumbs to mindless (and innumerate) panic.

Black agrees that the 2012 Obama wants his “grand bargain” going forward, but not with having wanted it all along. Yet listen (again) to the video at the top, in which Senator Obama talks to a roomful of Robert Rubins in 2006.

There he says plainly:

Both sides of the political spectrum have tended to cling to outdated policies and tired ideologies. For those on the left … too many of us have been interested in defending programs the way they were written in 1938.

He wasn’t a bad negotiator, nor was he tragically idealistic. He just had different goals than we believed him to have, and he failed only because Tea Party Republicans, not progressive Democrats, stopped him. Just as Monica Lewinsky did, by the way, during the Clinton administration.

Yes, Clinton wanted to cut Medicare just as badly as Obama wanted to cut Social Security.

Note in the clip above, how Cenk Uygur soft-pedaled Clinton’s betrayal — “That’s pretty disappointing,” he said. Soft-pedaling these “disappointments” provides cover for doing more of the same. (A version of the conversation without the Young Turks wrapper is here.)

‘Squaring Big Money Politics with Folk Appeal’

Is it possible that Democratic Party leaders want to fail in their negotiations with Republicans? Do they lose, not because they’re bad at it, but because these failures give them what they actually want?

Here’s Thomas Ferguson, he of the “investment theory of party competition,” to say yes. In a piece for the Institute for New Economic Thinking called “No Bargain: Big Money and the Debt Ceiling Deal,” Ferguson and his co-authors ask, “What is the real reason Democratic party leaders go along with the debt ceiling ritual?”

Their answer is painful, but obvious — unless you think Party leaders are children or fools. The authors repeat an exculpating question posed by Paul Krugman:

“More and more it looks as if there never was a strategy beyond wishful thinking. I hope that I’m wrong about this…But right now I have a sick feeling about all of this. What were they thinking? How can they have been caught so off-guard by something that everyone who’s paying attention saw coming?” (emphasis added)

They answer him this way:

The White House was not caught off guard. Like climate disaster, the crypto meltdowns, and the tremors now coursing through the American financial system, the high noon showdown between Republicans and Democrats over the debt ceiling was pre-programmed from the start.

The reason is simple: The dominating fact about American politics is its money-driven character. In our world, both major political parties are first of all bank accounts, which have to be filled for anything to happen.

Which leads to this conclusion:

[T]he President is running for a second term. His fundraisers openly declare that the campaign intends to raise more than a billion dollars. In recent presidential elections, contributions from labor union amount to about 6 or 7% of total political spending. Money in the amounts the Biden campaign seeks can come only from one place: from the superrich and very affluent Americans. And in a Congress so dependent on money flows, relatively few representatives in either party are likely to do much more than posture when it comes to raising taxes.

And the kicker, or punch to the face if you will:

For Democrats in particular, the advantages of first actually passing programs, then standing back and reluctantly sustaining votes to take them back are a dream come true for squaring big money politics with folk appeal. That is the real reason Democratic party leaders go along with the debt ceiling ritual. (emphasis added)

In other words, they’re not children; nor are they fools. They do it because they want to. It’s disrespectful to think otherwise.

I said above this was “Republican blackmail.” In fact, it’s donor class blackmail, they who always want more for themselves and less for everyone else. They who win when we lose. They whose control of government far exceeds ours.

Our Political World Needs a Primary

That’s the painful truth of our political world. And unlike the messages sent by their in-house media (looking at you, MSNBC), our leaders seem happy to risk handing power to Republicans, so long as it pleases their donors.

Yes, Republicans mean to do horrible things. Why won’t “our” Democrats stop them? The answer’s above.

The solution? If the Democratic Party can’t be disrupted or changed, I don’t think much else can. We should start with a primary, soon.