“Crisis To Crisis Management”: Congress’s Continual Game of Political Chicken
The proposal from the House of Representatives to push off the debt ceiling crisis for three months came with an ironic rhetorical frame: If the Senate will, in that time frame, pass a budget, we can start facing our long-term fiscal challenges instead of managing crisis to crisis. Oh, and if they don’t pass a budget all lawmakers will stop drawing salaries.
The basic idea that crisis to crisis management is the worst form of governance for our country is right on the money: Short-term continuing resolutions and other stop-gap measures ensure inefficiency because government agencies are hamstrung by their inability to plan beyond a few months. And absolutely the Senate should present a budget that lays out a vision for how to put our country on a path towards a healthy fiscal future. But, the politics over the debt ceiling in the last three years have been a leading contributor to the culture of avoiding hard decisions in favor of incendiary rhetoric we see in Congress today.
The debt ceiling debate in the summer of 2011 spawned the so-called “super committee” and so-called “fiscal cliff.” So, in the past two years we’ve seen the creation and failure of the super committee, an underwhelming fiscal cliff deal that paired special interest tax breaks with an increase to the rates for higher income individuals, and a short delay of the looming threat of sequestration, the across the board spending cuts that were supposed to motivate the super committee—and Congress—to come together to act. In the next two months we have another opportunity to avoid the sequester and the expiration of the current continuing resolution, the bill that funded government for six months at fiscal year 2012 levels in lieu of passing actual appropriations bills. And of course a debt ceiling vote is on the horizon.
All of these crises are manufactured. Those willing to put off raising the debt ceiling to make a political point are willing to hurt our economy and our standing in the world to make that same point.
At the root of these manufactured crises are a winner-take-all approach to the disagreements between and even within the political parties. At each crisis, Democrats and Republicans demand a total victory and a grand bargain only to end up placating one another with crumbs of a bad deal and promise to revisit the issues at the next manufactured crisis. Our nation cannot afford this continual game of political chicken. We cannot afford the impact of defaulting on our debts. Policymakers need to work together and come up with reforms to spending, taxes, and entitlements. No more political theater, no more back room discussions on grand bargains. It’s time for the hard work of legislating solutions to the nation’s fiscal challenges.
“Let’s Compromise, Do It My Way!”: The Republican Fever Has Not Yet Broken
I am grateful for some of the signs emanating from the Right yesterday indicating a willingness to accept the 2012 election results, and/or to stop treating the president of the United States as though he’s some sort of alien usurper of power. But let’s don’t get carried away in suggesting “the fever”–as the president referred to Republican radicalism and obstructionism during the campaign–has indeed broken.
Consider the headlines about Eric Cantor’s effusive expressions of good will and bipartisanship yesterday: “Cantor: Time for Washington to ‘Set Aside” Differences” is how CBS put it. Sounds good. But what, exactly, was Cantor talking about?
House Republicans announced last week their decision to hold a vote to raise the debt ceiling, potentially averting a contentious debate many expected to go down to the wire this February. Cantor said today House Republicans are committed to working on passing a federal budget “so we can begin to see how we’re going to pay off this debt; how we’re going to spend other people’s money, the taxpayers’ money; and begin an earnest discussion about the real issues facing this country.”
“I think times demand as much,” he said. “It’s time that Washington get with it, and that is why I believe, hopefully, the Senate can see clear to doing a budget, putting a spending plan out there for the world to see… So we can begin to unite around the things that bring us together, set aside the differences, and get some results.”
Do you see any change of position here, other than the already-decided House GOP decision to not to stake everything on a debt limit hostage-taking exercise at the end of February? Best way I know to translate what Cantor is saying is: “Let’s see how much agreement we can get on the elements of our agenda,” which are entirely about domestic spending, not defense spending or revenues, and involve direct benefit cuts, not ways to rein in health care costs.
Yes, it’s a good thing that for whatever reason congressional Republicans have decided not to blow up the U.S. economy if they don’t get their way in fiscal negotiations. But for the moment, their way or the highway still seem to be the only options they comprehend.
By; Ed Kilgore, Contributing Writer, Washington Monthly Political Animal, January 22, 2013
“A Wonderful Experiment”: Before Default, Let Republicans Bump Up Hard Against The Debt Ceiling
A prolonged confrontation over the nation’s debt ceiling — unlike the “fiscal cliff,” which provoked many scary headlines – could truly be grave for both America and the world. While press coverage often mentions the possibility of lowered credit ratings for the US Treasury (again), that might only be the mildest consequence if Republicans in Congress actually refuse to authorize borrowing and avoid default.
Last time the nation prepared to face such an impasse, during the spring and summer of 2011, the chairman of the Treasury Borrowing Advisory Committee – a JPMorgan Chase official named Matthew Zames – laid out a disturbing scenario in a letter to Treasury Secretary Tim Geithner, in which he foresaw a rolling catastrophe that could inflict hundreds of billions in additional borrowing costs; spark a run on money funds, leading to a renewed financial crisis; severely disrupt financial markets and borrowing, killing fragile economic growth; and push the economy back into recession due to higher interest rates and tightened credit.
In short, the economy would contract sharply and the U.S. – along with the rest of the world – might well be plunged back into negative growth. If that was true in July 2011, it is equally true today, and there is no reason to dismiss that warning.
But the Republican leadership on Capitol Hill insists that they are willing to take these mind-boggling risks, solely for the purpose of enforcing an extreme austerity regime that has already done permanent damage in much of Europe. Between the “Boehner rule” demanded by House Speaker John Boehner, which requires a dollar in new spending cuts for every dollar increase in the debt ceiling, and the House Republican budget authored by Rep. Paul Ryan, congressional Republicans evidently want not only to gut Medicare, Social Security, and Medicaid, but to “eliminate more and more of the basic functions of government over time,” according to the Center on Budget and Policy Priorities. No education aid, no food safety inspections, no environmental protection, no infrastructure repairs, no cancer research…
From immediate economic jeopardy to long-term national decline, these prospects are obviously appalling – yet many Republican elected officials sound positively pleased about the debt ceiling crisis they have created. Senator Tom Coburn, Republican of Oklahoma, told a right-wing radio host recently that a government default would actually be a “wonderful experiment.” He assured listeners, quite falsely, that their Medicare and Social Security checks would continue to arrive every month, no matter what, and that only “stupid” spending would be cut.
If Coburn – or any Republican senator – is so eager to test the debt ceiling, perhaps he should volunteer to bump up against it first. As the Tulsa World reported in 2011, federal spending in Oklahoma amounts to three times as much as the entire state budget, with Social Security alone accounting for almost a billion dollars a month there, and Medicaid and other medical assistance amounting to another $500 million-plus. Coburn’s ultra-conservative, deep-red home state is highly dependent on federal employment and assistance, ranking 12th in retirement and disability payments and 11th in per capita federal payroll, despite its small size.
So by all means, let’s find out, as Coburn suggested, whether we can live “on the money that’s coming into the Treasury” without borrowing to finance those monthly pension checks and all those stupid federal jobs — and let’s start in Oklahoma, tomorrow. Then let’s roll out the same experiment in every state whose senators and representatives are refusing to pay the bills they have already racked up over the years – especially states, like most of those below the Mason-Dixon line, where federal spending is far higher than the tax revenues remitted to Washington.
Surely that would silence all the loud talk about this “wonderful” experiment in fiscal brinksmanship.
By: Joe Conason, The National Memo, January 16, 2013
“The Big Fail”: Too Many Republicans Responsible For Economic Failure Retain Power And Refuse To Learn From Experience
It’s that time again: the annual meeting of the American Economic Association and affiliates, a sort of medieval fair that serves as a marketplace for bodies (newly minted Ph.D.’s in search of jobs), books and ideas. And this year, as in past meetings, there is one theme dominating discussion: the ongoing economic crisis.
This isn’t how things were supposed to be. If you had polled the economists attending this meeting three years ago, most of them would surely have predicted that by now we’d be talking about how the great slump ended, not why it still continues.
So what went wrong? The answer, mainly, is the triumph of bad ideas.
It’s tempting to argue that the economic failures of recent years prove that economists don’t have the answers. But the truth is actually worse: in reality, standard economics offered good answers, but political leaders — and all too many economists — chose to forget or ignore what they should have known.
The story, at this point, is fairly straightforward. The financial crisis led, through several channels, to a sharp fall in private spending: residential investment plunged as the housing bubble burst; consumers began saving more as the illusory wealth created by the bubble vanished, while the mortgage debt remained. And this fall in private spending led, inevitably, to a global recession.
For an economy is not like a household. A family can decide to spend less and try to earn more. But in the economy as a whole, spending and earning go together: my spending is your income; your spending is my income. If everyone tries to slash spending at the same time, incomes will fall — and unemployment will soar.
So what can be done? A smaller financial shock, like the dot-com bust at the end of the 1990s, can be met by cutting interest rates. But the crisis of 2008 was far bigger, and even cutting rates all the way to zero wasn’t nearly enough.
At that point governments needed to step in, spending to support their economies while the private sector regained its balance. And to some extent that did happen: revenue dropped sharply in the slump, but spending actually rose as programs like unemployment insurance expanded and temporary economic stimulus went into effect. Budget deficits rose, but this was actually a good thing, probably the most important reason we didn’t have a full replay of the Great Depression.
But it all went wrong in 2010. The crisis in Greece was taken, wrongly, as a sign that all governments had better slash spending and deficits right away. Austerity became the order of the day, and supposed experts who should have known better cheered the process on, while the warnings of some (but not enough) economists that austerity would derail recovery were ignored. For example, the president of the European Central Bank confidently asserted that “the idea that austerity measures could trigger stagnation is incorrect.”
Well, someone was incorrect, all right.
Of the papers presented at this meeting, probably the biggest flash came from one by Olivier Blanchard and Daniel Leigh of the International Monetary Fund. Formally, the paper represents the views only of the authors; but Mr. Blanchard, the I.M.F.’s chief economist, isn’t an ordinary researcher, and the paper has been widely taken as a sign that the fund has had a major rethinking of economic policy.
For what the paper concludes is not just that austerity has a depressing effect on weak economies, but that the adverse effect is much stronger than previously believed. The premature turn to austerity, it turns out, was a terrible mistake.
I’ve seen some reporting describing the paper as an admission from the I.M.F. that it doesn’t know what it’s doing. That misses the point; the fund was actually less enthusiastic about austerity than other major players. To the extent that it says it was wrong, it’s also saying that everyone else (except those skeptical economists) was even more wrong. And it deserves credit for being willing to rethink its position in the light of evidence.
The really bad news is how few other players are doing the same. European leaders, having created Depression-level suffering in debtor countries without restoring financial confidence, still insist that the answer is even more pain. The current British government, which killed a promising recovery by turning to austerity, completely refuses to consider the possibility that it made a mistake.
And here in America, Republicans insist that they’ll use a confrontation over the debt ceiling — a deeply illegitimate action in itself — to demand spending cuts that would drive us back into recession.
The truth is that we’ve just experienced a colossal failure of economic policy — and far too many of those responsible for that failure both retain power and refuse to learn from experience.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 6, 2013
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