ASMA KHALID, HOST:
The Treasury Department has been taking extraordinary measures to avoid a default on U.S. debt. But that's just a temporary solution. At some point, Congress and the White House will have to act together to raise the debt ceiling. And many of the same people who have been negotiating on this issue on and off since 2011, when the U.S. came so close to default that Standard & Poor's downgraded the nation's credit rating - among them, Joe Biden, who was then vice president. We spoke with former Treasury Secretary Jack Lew about what lessons were learned from previous debt ceiling crises. He helped navigate a few of them during the Obama administration. In 2011, he was director of the Office of Management and Budget.
JACK LEW: There were nights when we were negotiating literally through the night, you know, at multiple levels. I was with the vice president then, and Senator McConnell, on calls. We were in and out of the Oval Office. And there were nights when you would check the Asian markets in the middle of the night to make sure the world didn't think that was the day we were going over the line. And this was not at a random time. It was right as we were emerging from the great financial crisis.
KHALID: For those who don't remember what happened in 2011, how did it ultimately get resolved?
LEW: Well, it ultimately got resolved in a combination of lowering the caps on discretionary spending and putting in place a special committee that was supposed to report back on deficit reduction. And in the event that that special committee failed, you know, deep across-the-board cuts in a process called sequestration. And it was not a good process. It was only the best alternative at the moment to default.
KHALID: So it sounds like in 2011 there were concessions, ultimately, the Democrats made - right? - in the sense, after 2011 - was that Democrats can't do this in the future. Is that what you were saying?
LEW: Well, you know, not to go back to ancient history. I've been involved - I was involved - in showdowns over the debt limit in the 1980s, when I was working for the speaker of the House, in the 1990s, when I was at OMB in the Clinton administration and then again in 2011 and '13 in the Obama administration. What changed over time was there was always a negotiation with a must-pass bill until 2011, when, all of a sudden, default was an acceptable outcome to those making demands. That's not a negotiation. That's a kind of policy extortion.
KHALID: So let's talk about what happened then a couple of years later in 2013.
LEW: In 2013, President Obama - I was at Treasury at the time - myself and the economic team made the judgment we could not do that again. You know, it's one thing to negotiate over fiscal policy. And that is totally appropriate, but not with the demand of, if I don't get what I'm looking for, we will default. That had to be put to rest, and it got resolved in 2013 and beyond. This is really the first major showdown since then.
KHALID: So you mentioned in 2013 it ultimately got resolved. But then my recollection is it kind of bubbled up again - I mean, in 2015. Like, it didn't feel like it was fully resolved.
LEW: What happened in 2013 and beyond was Congress, you know, Senator McConnell in particular, found a way to structure it so that the president could make the hard decision about what the debt limit should be, and the president could bear all the political burden, as it were, of making the decision. And that's fine. What isn't fine is looking at a deadline where if you don't capitulate, you default. If you fail to pay any of your bills, you're in default. And I can tell you, as somebody who managed the kind of machinery behind planning on what happens if, there is no clean way to do that. It's not as if it's a modern computer program where you can put an algorithm in that says pay this, but don't pay that. You know, so if you can't pay all the bills out of a system, you can't pay any of them.
KHALID: So what did you take away from the situation, both, let's say, in 2011, but also in 2013 then, when you were Treasury secretary, about the best way to deal with this?
LEW: The best way to deal with it would be to have the debt limit not be a kind of catastrophic deadline. You know, it's hard to say, eliminate the debt limit.
KHALID: That's an argument we heard, I recall, last fall.
LEW: But eliminate really means - is deal with it in a way where you don't have to vote on it. The Constitution says only Congress can determine how much we borrow. Congress can say we could borrow as much as the president says we need to borrow. And I think, you know, it would have been a good thing if after 2013, '15, there had been serious discussion about how to move on so you didn't have these moments where the security of the United States was on the line.
You know, and looking at how this is going to play out over the coming months - the world is just emerging from the, you know, COVID economic crisis. We've seen moments of stress in Treasury markets. It's more than just an economic issue. It's really a national security issue. And I think the economics of it are terrible. You're going to see higher interest rates if we default. It's going to put a burden on regular working people. It's going to be a real, real problem.
KHALID: So now we hear the president say, the White House say, there will be no negotiations over this issue. Help me understand ultimately what that means. I mean, is the best-case scenario that some moderate Republicans will join forces with Democrats? And it's sort of like that's the only solution I keep hearing. And I'm wondering if there is an alternative.
LEW: I think - you know, what I've heard the White House say is several things. First, we won't negotiate over the debt limit, but let's sit down and talk about fiscal policy as we have to. You know, the Congress needs to set limits on appropriations. There can be conversations about other kinds of tradeoffs that could be made to reduce the deficit. I also have heard the White House say, what's your plan? If you don't know what the plan is, you can't even begin a conversation. And we've heard a whole range of plans. But you got to remember that in a House where it only takes a handful of members to call for a vote of no confidence in the speaker, the plan that matters is, what plan can he take to the floor? I don't have a clue what that plan is.
KHALID: That was Jack Lew. He was Treasury secretary from 2013 to 2017 in the Obama administration.
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