How Small Differences Could Lead To A Government Shutdown
We’re hours away from a shutdown, yet there’s still no deal. The negotiations have become slightly reminiscent of Max Baucus’s Gang of Six: a group of people in a room who desperately want to agree on something but can’t figure out how to get the people outside the room to sign off on it. You can tell that Reid and Boehner want to come to an agreement. But having taken Democrats past the Republican leadership’s opening offer of $32 billion in cuts, Boehner can’t take them much further. But so far as the Tea Party is concerned, Boehner still has not taken them far enough.
Boehner and Reid say they’ve “narrowed the issues.” That means they’re very close on total spending cuts (somewhere around $35 billion) and very clear on what’s left to negotiate. The problem, however, is that as small as a policy rider over federal funding for Planned Parenthood might be, the distance between the two parties on the underlying issue is great. Democrats were appalled yesterday when Republicans made a one-week stopgap contingent on a rider barring Washington, DC from using its own money to fund abortion for low-income women (so much for home rule). The stop gap went nowhere, even though the issue of how DC can use its own funds is, in the national context, small.
And the problem isn’t just the policy. What the two parties are trying to prove about themselves, and about their relationship going forward, is very big. John Boehner is trying to convince Republicans in the House and Republicans in the country that they can trust him, that he’s conservative enough and steely enough to represent their interests in negotiations with the Democrats. And Democrats are trying to show that they will not be rolled over in negotiations simply because the Tea Party is unwilling to compromise, that they still control the Senate and the White House and they plan to act like it. These negotiations are really about the next negotiations, and the negotiations after that. Both parties worry that if they compromise now, they only embolden the other side later. And later is when the stakes get really high.
For that reason, more than a few observers and participants have suggested to me that perhaps a shutdown tonight would be healthy. Better, they say, that Democrats and Republicans test what happens if they refuse to compromise now, when the consequences can be contained, than later, when the fight will be over the debt ceiling and the consequences could be catastrophic. That they may be right is a depressing commentary on the forces buffeting our political system right now, and the very real, very large risks they pose to the country.
By Ezra Klein, The Washington Post, April 8, 2011
What A Government Shutdown Could Cost Us
I don’t want to start a market panic here. I’ve no desire to be known for “The Klein Crash of 2011.” But it’s safe to say that much of Washington finds the low, low yields on Treasurys — which represent the market’s serene confidence that the U.S. can handle its debts — a little baffling. Senior government officials have told me they think Treasurys are probably a bit overpriced, which is a bit like the executives of GE privately wondering why investors are so sure they won’t go bankrupt. The investors might be right, but it’s not comforting to hear.
The market isn’t totally wrong, of course. The federal government probably won’t default on its debt. But it’s actually pretty hard to explain how we get the spending line and the revenues line to match each other. And we have a really dysfunctional political system. We’ll figure it out somehow. We always do. But our low borrowing costs are an advantage we want to preserve for as long as possible. That means keeping the market from realizing that partisan polarization mixed with our weird legislative system makes insane outcomes easily imaginable.
This is why a shutdown would be so dangerous. A last-minute deal tells the market that America is a country that dithers and procrastinates and anguishes but eventually makes the necessary decisions to avert terrible consequences. We can be trusted to follow through, even if only at the last minute. A shutdown tells the market that our political system has become so dysfunctional that we actually can’t be trusted.
Asger Lau Andersen, David Dreyer Lassen and Lasse Holbøll Westh Nielsen — remember them? — have looked into how the market treats late budgets in the states — and late budgets in the states, it should be noted, are considerably less public and psychologically disruptive than a shutdown of the federal government during a weak economy. The answer is: not kindly (pdf). “We estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points,” they conclude. To put that in context, economists estimated that if the Federal Reserve pumped $400 billion into the economy, it’d lower yield spreads by about 20 basis points, or two-tenths of a percent. And it actually gets worse than that: “Markets also punish late budgets much more harshly if they occur during times of fiscal stress.”
I think it’d be fair to characterize this as a time of fiscal stress, don’t you?
There are some reasons for optimism here. Markets seem to punish fiscal mismanagement more lightly if the state has access to lots of money, which usually means reserves. The federal government has access to lots of money — though through borrowing, not reserves — so it’s possible we’d get off lightly, too. If you look back to Treasury yields in 1995, you don’t see an obvious change, but (a) perhaps yields would have been lower without the shutdown and (b) the economy is a lot weaker today than it was in 1995. At any rate, do we really want to test this? And if so, how many times? The tea party types are already promising to oppose an increase in the debt ceiling in the absence of massive entitlement cuts. Sen. Marco Rubio says he’ll oppose lifting the debt ceiling unless it’s accompanied by “a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.” That’s quite a list of demands in order to avoid economic catastrophe.
The irony of all this comes clear if you consider why we’re afraid of deficits in the first place. If the market comes to believe our debt is too large for our political system to pay back, they’ll become more skittish about buying government debt, and that’ll send interest rates higher and the economy lower. But if we have a series of shutdowns while we argue over how much to cut and how fast, our paralysis will convince the market we can’t get our act together in time to pay off our debts and they’ll send interest rates skyrocketing anyway. We’ll have caused exactly what we sought to prevent, and done it now, when the economy is weak, rather than later, when the economy is stronger. As I said at the beginning of this piece, I’d sure hate to be known for causing an economic crash. How about you, Congress?
By: Ezra Klein, The Washington Post, March 30, 2011
Speaking Of The Federal Government, “Why Wouldn’t The Tea Party Shut It Down?”
No one remembers anything in America, especially in Washington, so the history of the Great Government Shutdown of 1995 is being rewritten with impunity by Republicans flirting with a Great Government Shutdown of 2011. The bottom line of the revisionist spin is this: that 2011 is no 1995. Should the unthinkable occur on some coming budget D-Day — or perhaps when the deadline to raise the federal debt ceiling arrives this spring — the G.O.P. is cocksure that it can pin the debacle on the Democrats.
In the right’s echo chamber, voters are seen as so fed up with deficits that they’ll put principle over temporary inconveniences — like, say, a halt in processing new Social Security applicants or veterans’ benefit checks. Who needs coddled government workers to deal with those minutiae anyway? As Mike Huckabee has cheerfully pointed out, many more federal services are automated now than in the olden days of the late 20th century. Phone trees don’t demand pensions.
Remarkably (or not) much of the Beltway press has bought the line that comparisons between then and now are superficial. Sure, Bill Clinton, like Barack Obama, was bruised by his first midterms, with his party losing the House to right-wing revolutionaries hawking the Contract With America, a Tea Party ur-text demanding balanced budgets. But after that, we’re instructed, the narratives diverge. John Boehner is no bomb-throwing diva like Newt Gingrich, whose petulant behavior inspired the famous headline “Cry Baby” in The Daily News. A crier — well, yes — but Boehner’s too conventional a conservative to foment a reckless shutdown. Obama, prone to hanging back from Congressional donnybrooks, bears scant resemblance to the hands-on Clinton, who clamored to get into the ring with Newt.
Those propagating the 2011-is-not-1995 line also assume that somehow Boehner will prevent the new G.O.P. insurgents from bringing down the government they want to bring down. But if Gingrich couldn’t control his hard-line freshman class of 73 members in 1995 — he jokingly referred to them then as “a third party” — it’s hard to imagine how the kinder, gentler Boehner will control his 87 freshmen, many of them lacking government or legislative experience, let alone the gene for compromise. In the new Congress’s short history, the new speaker has already had trouble controlling his caucus. On Friday Gingrich made Boehner’s task harder by writing a Washington Post op-ed plea that the G.O.P. stick to its guns.
The 2011 rebels are to the right of their 1995 antecedents in any case. That’s why this battle, ostensibly over the deficit, is so much larger than the sum of its line-item parts. The highest priority of America’s current political radicals is not to balance government budgets but to wage ideological warfare in Washington and state capitals alike. The relatively few dollars that would be saved by the proposed slashing of federal spending on Planned Parenthood and Head Start don’t dent the deficit; the cuts merely savage programs the right abhors. In Wisconsin, where state workers capitulated to Gov. Scott Walker’s demands for financial concessions, the radical Republicans’ only remaining task is to destroy labor’s right to collective bargaining.
That’s not to say there is no fiscal mission in the right’s agenda, both nationally and locally — only that the mission has nothing to do with deficit reduction. The real goal is to reward the G.O.P.’s wealthiest patrons by crippling what remains of organized labor, by wrecking the government agencies charged with regulating and policing corporations, and, as always, by rewarding the wealthiest with more tax breaks. The bankrupt moral equation codified in the Bush era — that tax cuts tilted to the highest bracket were a higher priority even than paying for two wars — is now a given. The once-bedrock American values of shared sacrifice and equal economic opportunity have been overrun.
In this bigger picture, the Wisconsin governor’s fawning 20-minute phone conversation with a prankster impersonating the oil billionaire David Koch last week, while entertaining, is merely a footnote. The Koch Industries political action committee did contribute to Walker’s campaign (some $43,000) and did help underwrite Tea Party ads and demonstrations in Madison. But this governor is merely a petty-cash item on the Koch ledger — as befits the limited favors he can offer Koch’s mammoth, sprawling, Kansas-based industrial interests.
Look to Washington for the bigger story. As The Los Angeles Times recently reported, Koch Industries and its employees form the largest bloc of oil and gas industry donors to members of the new House Energy and Commerce Committee, topping even Exxon Mobil. And what do they get for that largess? As a down payment, the House budget bill not only reduces financing for the Environmental Protection Agency but also prohibits its regulation of greenhouse gases.
Here again, the dollars that will be saved are minute in terms of the federal deficit, but the payoff to Koch interests from a weakened E.P.A. is priceless. The same dynamic is at play in the House’s reduced spending for the Securities and Exchange Commission, the Internal Revenue Service. and the Commodities Futures Trading Commission (charged with regulation of the esoteric Wall Street derivatives that greased the financial crisis). The reduction in the deficit will be minimal, but the bottom lines for the Kochs and their peers, especially on Wall Street, will swell.
These special interests will stay in the closet next week when the Tea Partiers in the House argue (as the Gingrich cohort once did) that their only agenda is old-fashioned fiscal prudence. The G.O.P. is also banking on the presumption that Obama will bide his time too long, as he did in the protracted health care and tax-cut melees, and allow the Fox News megaphone, not yet in place in ’95, to frame the debate. Listening to the right’s incessant propaganda, you’d never know that the latest Pew survey found that Americans want to increase, not decrease, most areas of federal spending — and by large margins in the cases of health care and education.
The G.O.P. leadership faced those same headwinds from voters in ’95. As Boehner, then on the Gingrich team, told The Times in a January 1996 post-mortem, the G.O.P. had tested the notion of talking about “balancing the budget and Medicare in the same sentence” and discovered it would bring “big trouble.” Gingrich’s solution, he told The Times then, was simple: “We learned that if you talked about ‘preserving’ and ‘protecting’ Medicare, it worked.” Which it did until it didn’t — at which point the Gingrich revolution imploded.
Rather hilariously, the Republicans’ political gurus still believe that Gingrich’s ruse can work. In a manifesto titled “How the G.O.P. Can Win the Budget Battle” published in The Wall Street Journal last week, Fred Barnes of Fox News put it this way: “Bragging about painful but necessary cuts to Medicare scares people. Stressing the goal of saving Medicare won’t.” But the G.O.P. is trotting out one new political strategy this time. Current House leaders, mindful that their ’95 counterparts’ bravado backfired, constantly reiterate that they are “not looking for a government shutdown,” as Paul Ryan puts it. They seem to believe that if they repeat this locution often enough it will inoculate them from blame should a shutdown happen anyway — when, presumably, they are not looking.
Maybe, but no less an authority than Dick Armey, these days a leading Tea Party operative, thinks otherwise. Back in ’95, as a Gingrich deputy, he had been more bellicose than most in threatening a shutdown, as Bill Clinton recounts in his memoirs. But in 2006, Armey told a different story when reminiscing to an interviewer, Ryan Sager: “Newt’s position was, presidents get blamed for shutdowns, and he cited Ronald Reagan. My position was, Republicans get blamed for shutdowns. I argued that it is counterintuitive to the average American to think that the Democrat wants to shut down the government. They’re the advocates of the government. It is perfectly logical to them that Republicans would shut it down, because we’re seen as antithetical to government.”
Armey’s logic is perfect indeed, but logic is not the rage among his ideological compatriots this year. Otherwise, the Tea Party radicals might have figured out the single biggest difference between 1995 and 2011 — the state of the economy. Last time around, America was more or less humming along with an unemployment rate of 5.6 percent. This time we are still digging out of the worst financial disaster since the Great Depression, with an unemployment rate of 9 percent and oil prices on the rise. To even toy with shutting down the government in this uncertain climate is to risk destabilizing the nascent recovery, with those in need of the government safety net (including 43 million Americans on food stamps) doing most of the suffering.
Not that the gravity of this moment will necessarily stop the right from using the same playbook as last time. Still heady with hubris from the midterms — and having persuaded themselves that Gingrich’s 1995 history can’t possibly repeat itself — radical Republicans are convinced that deficit-addled voters are on their side no matter what. The president, meanwhile, is playing his cards close to his vest. Let’s hope he knows that he, not the speaker, is the player holding a full house, and that he will tell the country in no uncertain terms that much more than money is on the table.
By: Frank Rich, Op-Ed Columnist-The New York Times, Originally Published 2/26/11
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