Negotiate Under Threat?

Paul Krugman

"Everybody not inside the bubble realizes that Mr. Obama can’t and won’t negotiate under the threat that the House will blow up the economy if he doesn’t — any concession at all would legitimize extortion as a routine part of politics. Yet Republican leaders are just beginning to get a clue, and so far clearly have no idea how to back down. Meanwhile, the government is shut, and a debt crisis looms. Incompetence can be a terrible thing."

Law of the Land; Holding the Government Hostage

Robert Reich

"The Affordable Care Act ('Obamacare') is the law of the land. A majority of the House and Senate voted for it, the President signed it into law, its constitutionality has been upheld by the Supreme Court, and a majority of Americans reelected the President after an election battle in which the Affordable Care Act was a central issue... We don’t repeal laws in this country by holding hostage the entire government of the United States."

"The Act is hardly perfect, but neither was Social Security or Medicare when first enacted. The Constitution allows Congress to amend or delay laws that don’t work as well as they were intended, or even to repeal them. But to do any of this requires new legislation – including a majority of both houses of Congress and a president’s signature (or else a vote to override a president’s veto)."

A Path Forward

House Republicans voted down a proposal to pass a "clean" continuing resolution (CR), i.e., one that doesn't call for delaying/defunding the Affordable Care Act, i.e., "Obamacare." The shutdown continues. Some Congressional Republicans claim the shutdown is no big deal, and have started calling it a government "slim down," a phrase being parroted by conservative news outlets and talk radio. It's far from that. It degrades important government functions, damages the economy, and hurts the government workers who have been sent home.

But rather than talk about why this shutdown is such a terrible thing, let's talk about what can be done about it.

Republicans have painted themselves into a corner. They've bragged to their TEA Party base about standing on principle, and pissed off a lot of other people by shutting down the government. Now they feel they can't just back away from the shutdown (which was, after all, a bargaining chip) without getting something for their efforts (misguided as they may have been).

"We're not going to be disrespected. We have to get something out of this. And I don't know what that even is."

Rep. Marlin Stutzman (R-Ind.)

Republicans have been pushing for a delay in the implementation of Obamacare, they've tried passing a CR defunding Obamacare, and they've tried piece-mealing reopening some facets/functions of government like National Parks and the VA (an obvious ploy to make Democrats look bad).

None of this has worked.

What might work?

Back room negotiations in which the Democrats agree to formation of a bipartisan panel to review implementation of Obamacare and make recommendations for changes, in exchange for a clean CR from the Republican-led House, plus an agreement to raise the debt ceiling.

Republicans could attach other requirements to future legislation that helps ensure Democrats and the President will seriously consider the panel's recommendations, and not just let them stagnate until 2016.

Right now, Republicans aren't offering anything that Democrats could agree to, and sitting at a table across from empty seats where non-negotiating Democrats aren't sitting, ain't gonna cut it.

The Sword of Damocles Approach to Deficit Reduction

Damocles at the feast of Dionysis.

Oil painting by Richard Westall

Everyone seemed to breathe a sigh of relief when Congress finally agreed to raise the debt ceiling, given certain conditions, all of which involved cutting government spending. Then two days later, stock markets around the world plunged -- the Dow Jones was down over 500 points and the S&P was down almost 5%. Is it possible that the "path ahead" hashed out by partisan bickering with the sword of Damocles hanging over our heads wasn't the most intelligent approach to solving the long-term debt crisis?

According to the Congressional Budget Office, the American Recovery and Reinvestment Act of 2009" (“the stimulus”), which included $288 billion of tax cuts and $499 billion of spending, added between 1m and 2.1m jobs to the American economy by the end of 2009. Moody's, IHS Global Insight, and Macroeconomic Advisers think it added between 1.6m and 1.8m jobs.

The American economy is staggering along at a growth rate of 1.3% in Q2 of 2011 (for comparison, China's GDP rate is 9.5% and India's is 7.8%). The US unemployment rate increased to 9.2%. Among major economies, this is the third highest rate of unemployment after France (9.7%) and India (9.4%). And yet Republicans in Congress are clamoring for additional cuts in government spending and decrying past stimulus spending. Instead, they want to extend the Bush tax cuts and they don't want to eliminate tax breaks and/or subsidies, or close loopholes. According to Paul Krugman, they've got it bass ackwards. Tax cuts do little to stimulate the economy, especially those for the wealthiest 1% of Americans. Public spending, on the other hand, can raise GDP by $1.50 for every dollar spent.

The bottom line is that the $775b fiscal stimulus proposed by President Obama in 2009 (ultimately cut to $600b by the Senate), wasn't enough then, and spending cuts now will exacerbate the mistake. The American economy needs a shot in the arm, not a kick in the pants.

Republican Zealots Threaten America's Security

Based on an article by Nicholas Kristof in the NYT, 7/23/2011

We tend to think of national security narrowly as the risk of a military or terrorist attack. But national security is about protecting our people and our national strength — and the blunt truth is that the biggest threat to America’s national security this summer doesn’t come from China, Iran or any other foreign power. It comes from budget machinations, and budget maniacs, at home.

House Republicans start from a legitimate concern about rising long-term debt. Politicians are usually focused only on short-term issues, so it would be commendable to see the Tea Party wing of the Republican Party seriously focused on containing long-term debt. But on this issue, many House Republicans aren’t serious, they’re just obsessive in a destructive way. The upshot is that in their effort to protect the American economy from debt, some of them are willing to drag it over the cliff of default.

Republican zealots yelling about America's debt and the Democrat's "tax and spend" policies are in fact, fanatics willing to ruin our economy in order to have their way. No tax hikes, no way, no how. No new revenue, not even from corporations that pay no taxes, like General Electric. Not even from corporations like Exxon-Mobile that are making billions in profits and still accepting taxpayer handouts in the form of government subsidies.

No, the Republican Tea Party members and sympathizers would rather cut programs that can serve to bolster America's long term economic recovery, keep America at the forefront of science and technology, educate our young people, and help the elderly and disabled. That's the Republican way. It's always been the Republican way (During the 1960s Ronald Reagan was the key participant in an American Medical Association (AMA) sponsored campaign to prevent the enactment of Medicare).

Republicans under George W. Bush drove the American economy into the toilet with unwarranted tax cuts for the wealthy, a prescription drug program that has cost over $549 billion and was not paid for, and two costly wars that were not only not paid for, but were underway when Republicans slashed taxes. It was no less than fiscal criminal negligence.

Now Republicans are feigning righteous indignation over the Nation's enormous national debt and preparing to stand firm on their demands for massive cuts to social programs and no new taxes. Well, to hell with them!

Consequences of Failure to Raise the Debt Ceiling

America's debt ceiling is currently set at $14.294 trillion. Our accrued debt hit that mark 6 weeks ago, on the morning of May 16. The US Treasury (you know, the place you sent your taxes April 15) suspended investments into Federal Retirement Funds (like the one that pays my military pension) in order to extend the US borrowing limit until August 2. After that, America defaults, we don't pay the bills for things we've already "bought."

Foreign holders on US bonds might dump a bunch and stop buying them in the future. That would drive up the cost of borrowing and the cost of everything else, as well. BTW, you know who pays the bill if it costs the Treasury more to borrow? Taxpayers like us. The politicking over this issue has already caused a loss of confidence in the dollar, which could, in the long term, lead to a downgrade in the US credit rating. Bad news for borrowing.

A default could lead to a run on money market funds and we could see financial firms going the way of Lehman Brothers. Next thing you know, banks and investment firms aren't lending. There goes any hope of economic recovery. It goes without saying that stock markets around the world will take a nose dive. What did your 401K lose in the 2008 crash, 30%, 40%? It will be worse this time.

The government might have a partial shutdown; federal pension payments might be suspended (there goes my military pension); social security payments might be suspended (Republicans would like to see them eliminated altogether -- they thought it was a bad idea in the first place); states might cease to receive Medicaid funding; and so on. Bad news all the way around.

Now here's the kicker. It's unconstitutional (under the 14th Amendment) for the US not to pay its debts, debt ceiling or no debt ceiling. Thus, the president can declare default unconstitutional and arrange to pay the nation’s debts unilaterally. Maybe that's what Republicans are hoping for. Then they can use President Obama's "authoritarian spendthrift ways" against him in the 2012 election. Nah, they wouldn't be that crass, would they?

A good Q & A on the debt ceiling and the potential consequences of default can be found here.