Had some delays reconstituting our farm as we transition to Aaron, so the electronic money squirt was accomplished last Friday. And goodness knows that whopping $5/A payment is desperately needed for shoes for the kids!
Little did I suspect how timely that could be in light of the next Washington battle over the debt limit.
It’s a two pronged strategy. The first one is a credible, repeated commitment not to surrender anything in exchange for getting congress to agree to the debt ceiling being increased. After all, why should anything be given up. Everyone knows that increasing the debt ceiling is the right thing to do. If the government were operating under uniform Republican control, the GOP would be increasing the debt ceiling. There’s nothing to bargain over. If some members of congress genuinely think that no increase in the debt ceiling is a superior options to raising it, then they’re entitled to be wrong. But there’s no reason that Obama should be trading votes with guys like John Boehner who know perfectly well that an increase is in order. This frames the issue correctly as one of whether or not Republicans who think an increase is warranted will nonetheless refuse to allow one in order to extract unrelated concessions.A few months ago I would have thought this strategy a little shabby, but events have shown that coarseness is the rule of the day. Many political combatants really want to turn government into the WWF. Unfortunately, in my view, it is almost impossible to prevent this degradation.
The second prong, important for credibility, is to move to thinking about what happens as we reach the ceiling.
This isn’t a sudden “shutdown.” Nor is is true that we have to default on obligations to our bondholders. Rather, it means that government outlays are now limited by the quantity of inbound tax revenue. But for a while, the people administering the federal government (to wit Barack Obama and Timothy Geithner) will be able to selectively stiff people. So the right strategy is to start stiffing people Republicans care about. When bills to defense contractors come due, don’t pay them. Explain they’ll get 100 percent of what they’re owed when the debt ceiling is raised. Don’t make some farm payments. Stop sending Medicare reimbursements. Make the doctors & hospitals, the farmers and defense contractors, and the currently elderly bear the inconvenient for a few weeks of uncertain payment schedules. And explain to the American people that the circle of people who need to be inconvenienced will necessarily grow week after week until congress gives in. Remind people that the concessions the right is after mean the permanent abolition of Medicare, followed by higher taxes on the middle to finance additional tax cuts for the rich. [More]
This political theater has left others uninspired as well.
I think it's worth remembering a few important things. First, the federal government did not need to cut spending in this fiscal year. There is no immediate fiscal crisis; on the contrary, yields on American government debt remain extraordinarily low. Second, macroeconomically speaking, now is a bad time to be cutting spending. The economy remains very weak, state and local governments are already trimming back public spending and placing a big drag on economic activity, and there's plenty of contractionary developments in the pipeline already, from the impending end of QE2 to the impact of rising oil prices. Since the government didn't need to cut and shouldn't, from a macroeconomic perspective, have been cutting in the first place, it's hard to understand why anyone thought it was a good idea to threaten a damaging government shutdown in order to cut.Like any conflict, there are significant rewards to those who can stomach such confrontation. What is more concerning is the paucity of historical examples of cultures climbing back to civility and compromise.
Third, had America actually been facing a crisis or had it simply been an opportune moment to trim back state spending, this was just about the worst way to go about cutting. The cuts don't touch on the real sources of the long-term budget problem. They impact important programmes and are therefore of questionable sustainability. Little to no effort was made to identify cuts with the best economic return. And the Republicans made a joke of the whole process by larding their demands with fiscally irrelevant riders, most of which seem tailored to enrage Democrats.
Everyone involved should be embarrassed. But few journalists seem to think that this absurd sequence of events will in anyway reduce the likelihood of an even greater mess down the road when it comes time to raise the federal debt ceiling. The case for raising the debt ceiling is incredibly strong. For one thing, not raising the debt ceiling could be end up being really bad; the government would have to engage in major gymnastics to avoid a default. For another, not raising the debt ceiling would not address the government's deficits; deficits and debts are residuals. If you want to actually limit them you have to identify spending that should be cut and taxes that should be raised. What's more, the leaders of both parties say that the debt ceiling should be raised. Most everyone wants to do something which most everyone agrees should be done.
And yet, the government will likely be pushed to the edge of crisis. These fights are risky and counterproductive. Sadly, I suspect that the reaction of most of the Washington press corps will be to—once again—get so caught up in the tick-tock of the dramatic showdown that they'll neglect to point out just how magnificently the elected leadership in Washington is failing its citizenry. [More]