Jul 1, 2011

The Debt Ceiling vs. Obama

As should be plain, I am not an economist. I am not even an amateur economist. Of course, that does not stop me from commenting enthusiastically on the economy. At best, I'll learn something, at worst I'll be ridiculed for being not even wrong.

I have endured worse.

So, what's this impending debt ceiling crisis we are about to face? Even non-amateurs, non-professionals like myself know that default on a debt has bad consequences. What I do not know is how bad it will be. So what's one to do?

Listen to an economist. And for his track record, I find none better than Paul Krugman. His opinion is  hardly ominous:
At best, we’ll suffer an economic slowdown; at worst we’ll plunge back into the depths of the 2008-9 financial crisis.
OK, we can conclude that it is going to be bad.

But why has this nonsense persisted this long? Bush the Younger basically doubled the debt, and the debt ceiling was raised, oh, about seven times.

This is Round 3 of Political Chicken.

Round 1 was back in December, when after a crushing defeat of the Democrats in the midterms, there was the impending doom of letting the Bush tax cuts expire. That is, unless the Top 2% got their billions, the next tier would lose their hundreds. What did Obama do, then?
I've said before that I felt that the middle class tax cuts were being held hostage to the high end tax cuts. I think it's tempting not to negotiate with hostage takers unless the hostage gets harmed. Then, people will question the wisdom of that strategy. In this case the hostage was the American people and I was not willing to see them get harmed.

He caved. But not out of cowardice or any real concern for the 'hostage'. He caved because it would have been a really stinging blow to his re-election chances were he to 'raise taxes' right after being pummeled in the midterms.

That deal was the best he could have gotten from the GOP.

But it was no compromise. For, in a compromise each side has a little bit of give and take. He got nothing back. At the very least he should have gotten a deal that guaranteed an increase in the debt ceiling without brinkmanship.

Round 2 was back in April, when the GOP attempt at brinkmanship really went down to the wire. There, because Obamacare was one of the things being threatened, Obama stood firm. Because no matter how compromising he could get, there was no way he'd give up his signature legislation, one that cost him to burn up a lot of political capital and heavy losses in the House. We could have afforded the shutdown, and while Obama had something to lose, the GOP had more to lose.

Round 3 is shaping up exactly like Round 1. If the American people were being held hostage before, now they are being held hostage with explosives strapped to them, and in a location distant from the GOP.

The ransom? Cuts that debilitate Democratic constituents, and no one is to even make eye contact with the top 2%. This is precisely what happens when hostage takers understand that the negotiator will not step over a line.

The moment Obama gives in, the Democrats are done. There will be no reason to ever elect these same Democrats again. Obama will probably get re-elected. But the casualties would be the Democratic Party. The middle class is just collateral damage.

When you stand for nothing, you'll fall. This is the reason I never vote for Democrats. They never stand for anything.

Henry Waxman knows what's coming when he said this
To a person, [the Republicans] said the president’s going to cave...If you’re [Obama] not going to cave, eliminating that misunderstanding is very, very important to the negotiations, and if you’re going to cave, tell us right now.

I'm telling you right now, Obama's going to cave, because that's the easiest path to his re-election. Social Security and Medicare will take big cuts, tax cuts will remain, and the deficit will grow larger. Boehner and Cantor are probably willing to entertain tax hikes, but they are not going to alienate the Tea Party. They have no reason to, because whether the debt ceiling is raised or not, they're unaffected politically.

If you cannot sell the plain fact that the GOP has never, and does not care about the deficits, you have no choice but to cave in. The Democrats have a choice though. They can demand a vote in the Senate, and make the GOP read the phone book in their nationally televised filibuster arguing for the preservation of the subsidies for Big Oil and Farm, and for tax cuts for the rich.

In other words, use the filibuster.

The writing is clearly on the wall that the GOP will not compromise. A compromise in a budget cannot be made when the option to increase revenues has been taken off the table. At this point, it is only a question of whether you want to let all the hostages die in an explosion or of hunger.

I could be wrong, and Obama will claim victory after getting a morsel. He is after all, a shrewd politician. You do not get to be president while being black. He did just that. After beating the powerful Clinton election machine, and the redoubtable GOP election machine. He also got the ACA passed. That is no mean feat for any politician, and for a black one, quite astonishing.


Bretta said...

IMO Obama is a much more brilliant politician than Boner. He has set a snare for the Speaker of the House and is slowly tightening it around him. It is going to get very interesting.

Shripathi Kamath said...

I am not skeptical that Obama will win re-election. He knows when to draw the line; the problem is what would happen of these Democrats? They'll be irrelevant and replaced by Tea Partiers.
That cannot be a good thing. Or may be it will be in 2014, when the people will vote the idiots out and get some better Democrats/Republicans in power.

Obama loses if he agrees to draconian cuts to the middle class, and does not let the Bush cuts expire.

It is unlikely that he won't at least invoke the 14th before that.