Thoughtless Doubts in Debt Ceiling Debate Could Lead to Disaster

07/27/2011 11:04 am ET | Updated Sep 26, 2011

The U.S. government's solvency after August 2 may well depend on who prevails in a sharply partisan debate about how bad a default would be for the economy -- ordinarily the sort of issue politicians leave to experts. Democrats predict catastrophic consequences if Congress and the president can't reach an agreement to raise the debt ceiling.

However, many congressional Republicans and several GOP presidential candidates are skeptical of those warnings. Sen. Jim DeMint (R-S.C.) has gone so far as to denounce the dire predictions as "irresponsible." In the debt ceiling talks, each side's willingness to compromise will depend on how much it fears a default.

Of the disagreement over the economic facts, two things are certain: somebody is dead wrong, and there's an easy way to determine who it is. To find out who's right, all Washington needs to do is let the default occur and see what happens.

Of course, the problem with this "experiment" is that, if the Democrats' "hypothesis" is confirmed, the country will pay a horrific price and Americans will bitterly condemn their leaders for such reckless folly. If, on the other hand, the Republicans who believe worries about the effects of a default are wildly overblown turn out to be right, then the economy will not be much worse off than it is now.

Obviously, this is a difference of opinion where it matters who's right -- indeed, for the welfare of the country, it could hardly matter more.

The critical question is: Who has the burden of proof? Or conversely, which position is it reasonable to assume is true (e.g., in policy-making) and to require compelling reasons to reject? Regarding the debt ceiling debate, the issue is whether it is more rational for the President and Congress to assume the truth of the Democrats' pessimistic prediction or that of the conservative Republicans "not-so-bad" scenario.

It is crucial to understand that this is not merely a question of which forecast is more probable, given the available evidence. Also relevant are the costs connected with the respective outcomes. The most sensible course of action depends both on which assumption is more likely and on how severe the economic and social costs would be in each case. As Pentagon war-gamers well know, even highly improbable events that would be cataclysmic if they occurred (so-called "Black Swans") must be given significant weight in decision-making.

Thus, if government leaders compare the reasonableness of the Democrats' and Republicans' opposing predictions -- which is their duty as policy-makers -- they will have to take into account both the probabilities of the predicted results and their costs.

On the question of which prediction is more probable, it's hard to see how there could be any genuine dispute. Most leading economists contend that a debt default would be calamitous, halting vital government functions and frightening the bond markets. Moreover, when you don't pay your creditors, they hike your interest rates or stop lending to you. Republican optimists will no doubt insist that, nevertheless, the Democrats' alarming scenario is not in fact more probable, citing a few economists who support their sunnier view.

What should settle the burden-of-proof question is this: Suppose the president and Congress fail to avert a default. If the Democrats are wrong that the event would be devastating for the economy, the costs will be relatively small. If the Republican skeptics are wrong, the costs will be crippling. Can anyone seriously doubt that the burden is on the Republicans to justify their skepticism -- and that they have manifestly failed to do so?

The blithe confidence of Sen. DeMint and other Republicans who scoff at well-founded apprehensions about the government's looming inability to pay its bills is mystifying. They have the same stake as the rest of us in avoiding economic ruin. As political leaders, they have both official and self-interested reasons to protect the nation's shaky health. So, it is astonishing that they seem not to have asked themselves a basic question any responsible leader asks when taking a stand on an urgent issue: "What if I'm wrong?"