This topic is so laden with “us vs. them” thinking that I am loathe to approach it. Still, here are a few thoughts:
1. There is plenty in the federal budget which can be cut and should be cut, starting with farm subsidies but extending considerably further.
2. In blackmailing President Obama (and arguably the Senate too), the House Republicans are cowards. They want him to take the heat for the spending cuts.
3. In considering the blackmail to be blackmail, the Obama administration has its share of cowards. “You are forcing us to propose something we believe in” is not that serious a negative charge, even if the motives of the forcers are ignoble. That said, the Obama administration is probably not going to propose something it believes in, which makes them ignoble too.
4. “Blackmail” is also known as “checks and balances” and it does not, normatively speaking, require an electoral mandate. That said, arguably the House Republicans do have an electoral mandate for the idea of “doing something about the crummy budget,” but do not have a mandate for particular cuts which might be prompted. Which of these is the “fact of the matter” is a moot point.
5. In my view the consequences of “funny debt ceiling outcomes” could be very, very bad. Various crude causal theories, or underspecified bargaining theory axioms, will be used to apportion this blame to one side or the other. The naive causal perspective would seem to apportion most of the blame for the chance of catastrophe to the Republicans.
6. By refusing to raise income tax rates on the non-wealthy, or to propose some comparably unpopular reforms, the Obama administration is somewhat undoing the normative relevance of the naive causal perspective here. The Obama administration is also stonewalling on (required) further fiscal reforms to Medicare, to better use the issue against the Republicans.
7. Do we take market prices seriously? Since Treasury rates are still low, low, low, arguably we can infer that the market does not think the Republican stance is so catastrophic. Paul Krugman does not take a consistent position on the relevance of low rates. They are allowed to indicate that the U.S. government should spend more, but not allowed to indicate that we should diminish the blame to be leveled at Republicans. One cannot have it both ways.
Addendum: Megan McArdle comments.