11 Jul

If the federal government doesn’t raise the debt ceiling by August 2nd, it’s feared that the country’s inability to pay its bills and/or debts will plunge the world economy into yet another downward spiral, rivaling the 2008 meltdown. Or possibly something worse than or equal to the Great Depression.  Or perhaps it’s exactly what Dr. Paul ordered.  Consider:


It’s too early to analyze whether the President’s strategy in “negotiating” with congressional Republicans is yet another awful example of horse-trading in the face of intransigence, or instead some tactical rope-a-dope brilliance.

But in the midst of an economic recovery that isn’t creating any jobs, I get the sense that it’s fundamentally irresponsible for any part of the federal government to further harm everyone’s already shaken confidence – in the economy, in employment, in production or consumption, in government in general. While Eric Cantor stands to personally profit from a federal default, the party to which he belongs is busy yelling about deficit and spending reduction, all of which signifies nothing in the face of President Obama’s proposal for a package that would, in ten years, reduce the deficit by $4 trillion.

Obama has, in fact, infuriated Democrats by proposing cuts to Medicaid, Medicare, and Social Security entitlement benefits. The deal he’s proposed would seem to be exactly what the Republicans say they want – significant spending cuts, reformation of entitlement programs, and deficit reduction. The reason they won’t go along? The proposed rescission of the Bush/Obama tax cuts for the wealthiest Americans. Not for nothing that even the Republican patron saint Reagan raised taxes when necessary, and that tax rates are at historic lows yet doing absolutely nothing to move the economy along, Boehner and his minions are showing that they’re not really about spending cuts and deficit reduction. They’re all about protecting millionaires and billionaires from an incremental rise in their effective income tax rate.

Seriously – they’re willing to plunge the world economy into possible depression in order to ensure that Paris Hilton keeps a bit more of her money. And the recovery? Because the stimulus was weakened in an effort to gain Republican support that never came, it wasn’t enough to do what it should have.

David Frum explains that the Republicans have painted themselves into a corner by invoking the debt ceiling as the “no deal” option. He compares 2011 to 1990, when the Republicans raised the top marginal rate from the high 20s to the low 30s – the act that blew George H.W. Bush’s “no new taxes” lip-reading pledge out of the water.

Had House Republicans succeeded in derailing the 1990 deal, things would have bumped along as before. The deficit would have stayed big, interest rates would have stayed high, growth would probably have remained slow. Unpleasant, but not the end of the world.

But this time there is a hard and dangerous deadline – a deadline imposed by Republicans themselves. By deploying the debt-ceiling weapon, Republicans denied themselves the option of choosing “no deal.” Unlike 1990, this time, there must be a deal, and if Republicans cannot get a deal that their most radical members like, they will have to settle for a deal that their most radical members do not like.

This predicament creates powerful temptations for individual Republicans to defect from the party coalition in hope of gaining for themselves the kind of credit and clout that Newt Gingrich got by defecting in 1990. This time, however, defection carries a heavier price: a real risk of tumbling the country and the world into financial crisis.

Back in January, John Boehner promised it would never come to this. I believed him – and argued vigorously on television against those who predicted that the radicals would carry the day. It looks like I was wrong about that, at least that I have been until now.

Another writer at FrumForum writes:

In fact, a growing faction (and I count a few people I consider friends as members of it) somehow seems to think that a default on the debt would get the nation’s house into order on the basis that it would cut spending. It would cut spending, and cause a worldwide depression at the same time. Republicans need to do a lot more to convince voters that they can govern and a legitimate jobs plan would be a very good start.

The Republican strategy at this point appears to be “destroy the economy so Obama can’t be re-elected”. That may, in fact, happen. And maybe President Bachmann or Romney can fix the economy by further cutting taxes. But it’s doubtful.

If Boehner could get his caucus to back the proposal now before them, it would be historic and may actually help the economy in a palpable way. But the serious Republicans have let the tea party and the idiot Republicans (Bachmannites, Palinists) gain too much influence.

So, Americans wait for Washington to get serious. The world waits for us to get serious. The economy treads water while Washington dithers. The culture in Washington hasn’t changed – with Obama it’s worsened because it takes two to tango, and the Republicans have strategically sidelined themselves.

Mr. Cantor suggests that a more modest $2 trillion in deficit reduction should instead be pursued. Thinking small, this solution would give Republicans everything they want (weakening of the social safety net), with absolutely no pain being felt among the wealthiest Americans. The middle and working class are getting historically shafted in this country while both parties tiptoe around the very wealthy because of the idiotic way in which we fund elections.  When someone calls the GOP on this, they get accused of class warfare; in fact, it’s the Republicans who are engaging in class warfare on behalf of society’s haves.  Calling them out on it is called “truth”, not “class warfare”.

The country is pretty fundamentally broken. One hopes it can be fixed soon, and that serious people begin to treat serious matters seriously. One hopes that Washington can start leading with thoughtful compromise, rather than bumper sticker slogans.  One hopes that the interests of the country and her people someday trump the interests of partisanship or campaign financiers.

17 Responses to “Confidence”

  1. Greg July 11, 2011 at 10:16 am #

    This makes me nervous.

    They really are all about protecting millionaires and billionaires. It bothers me every time I see a Republican on TV giving the ol’ “we won’t raise taxes in a recession” line. It won’t hurt billionaires or the economy, but the Republicans sure like pretending it will.

  2. Leo Wilson July 11, 2011 at 11:11 am #

    $2T over what period of time? The budget shortfall is slated to be $1.6T this year. Cutting $1.6T out of this year’s budget would leave us with too large a debt that isn’t growing, and do nothing at all to reduce debt.

    Of course, no budget was passed for this year, so perhaps I’m spinning this just a little… or, perhaps that projected budget deficit for this year is just a media event that provides cover for much worse numbers.

  3. Mike In WNY July 11, 2011 at 12:21 pm #

    If you want to talk about protecting millionaires and billionaires, an unbiased look at what Obama has done is necessary. The banks, Wall Street and the defense industry are flourishing due to all the bailouts, tarp funds, etc. Look at the top-level appointments made by Obama, big business is very well represented. Am I suggesting Republicans aren’t blameless? Of course not. We have a bipartisan spending problem, not a credit problem. Kicking the can down the road, with raising the debt limit in exchange for future spending reductions that may never happen, is very dangerous. There are myriad places to cut spending, without touching social programs (at least initially).

    Republicans probably are using the debt crisis to further their chances in 2012. Obama is fear-mongering by using the threat of default to further his crony-capitalist agenda.

  4. Jesse July 11, 2011 at 12:36 pm #

    “One hopes that Washington can start leading with thoughtful compromise”

    There’s always a first time I guess….

    Once again, we don’t have a revenue problem, we have a profligate spending problem.  It’s all bullshit anyway.  $4 T over 10 years is only deficit reduction, not DEBT reduction which we really need.  $400 B per year is a joke when the deficit is $1500 B.

    We are seriously f***ed if interest rates ever rise.

    Cut the military first, entitlements second.  And drop some useless federal departments while we’re at it (Dept of Education is first against the wall).

  5. rastamick July 11, 2011 at 1:11 pm #

    Curious as to how invoking the 14th amendment would play out in 2012. Would Obama be the leader who flew in the face of Petraeus and went ahead with the bin Laden hit or would he be the traitor who did a cowardly end run from the bullies who always eat his lunch ? 

  6. Dan July 11, 2011 at 1:22 pm #

    If your household was deep in debt and you had just maxed out your 20th credit card, would the most prudent decision be to ask for your credit limits to be raised, or to scale back your spending?

    We aren’t in debt because we don’t tax enough – we are collecting near record taxes. We are in debt because we have out of control spending.

    • Christopher Smith July 11, 2011 at 2:12 pm #

      So, Dan, are you not happy with $4T in debt reduction with an 83/17 split on spending and revenues?

  7. Rob July 11, 2011 at 2:12 pm #

    Income tax receipts as a percentage of GDP are not near record highs; in fact, they were higher under St. Reagan and Bush II.

  8. Bbill July 11, 2011 at 2:13 pm #

    Frank Luntz would be proud … his Fox News talking points are eagerly parroted here and elsewhere as his followers attempt to rationalize the GOP’s extortion attempts against the American people. Nice economy ya got there; be a shame if anything were to happen to it.

  9. Dan July 11, 2011 at 2:32 pm #

    Income tax receipts are at or near an all time high. Considering that nothing the government produces is included in the GDP, the ratio comparison is interesting but not compelling.
    Chris – I could live with the $4T debt reduction and even with the 83/17 split but only if the increase in the debt ceiling was 1/4 of what is being asked for. Then we could sit down and start making the serious cuts that are going to be required to put us on sound financial footing.
    Bbill – this “nice economy” is a fragile house of cards. And I honestly can’t remember the last time I watched Fox News, but I have vivid recoleections of Macroeconomics courses that showed the flaws in Keynsian theory.

  10. Rob July 11, 2011 at 2:41 pm #

    It’s silly to measure receipts in absolute terms because of course the economy and the population grows over time. But even in absolute terms income tax receipts are significantly less now than they were under Bush II, and the highest marginal tax rate is as low as it has been since 1931, with the sole exception of 1990-92 when it was slightly lower.

  11. Starbuck July 11, 2011 at 3:21 pm #

    “fundamentally irresponsible”
    “willing to plunge the world economy into possible depression”
    “One hopes that the interests of the country and her people someday trump the interests of partisanship or campaign financiers.

    A few short years ago, was Barack Obama being fundamentally irresponsible and willing to plunge the world economy into depression due to his partisanship or interests of his campaign followers? Or that was different from some reason – not exactly the same as it appears? Just wondering.

  12. Greg July 11, 2011 at 9:04 pm #

    If your household was deep in debt and you had just maxed out your 20th credit card, would the most prudent decision be to ask for your credit limits to be raised, or to scale back your spending?

    Maybe both. And I’d also stop working 10 hours a week and start working 40. (Increase revenue.)

  13. Greg July 11, 2011 at 9:04 pm #

    ^ Ah, stupid quote

  14. Black Rock Lifer July 12, 2011 at 8:32 am #

    I am so tired of hearing that the wealthy are “job creators”, the past 10 years of tax holidays for the rich has proved that premise to be patently false. The only way to create jobs is to provide the middle class and working poor with more disposable income. Time for our elected “leaders” to represent the average American and stop enabling the rich.

  15. Hank July 13, 2011 at 1:50 pm #

    I never got hired on a job by a poor man. Have you?

    • Alan Bedenko July 13, 2011 at 2:04 pm #

      No, but I’ve gotten hired on every job I’ve ever had by someone in the middle class. With one exception, no one I’ve ever worked for earned more than $200,000.

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