Debt debacle: A few things to bear in mind

Sam Smith

- Not since the Civil War has there been such a major assault on accepted principles of the Union as defined by a majority of its citizens over many years. This is not just a fight over the budget; it is war by the GOP right and the corporate elite on innumerable social programs including Social Security, Medicare, food stamps, and public services. It is an attempt to reverse seventy five years of social democracy in the U.S.

- The techniques being used by the Republican right are similar to the plantation politics used by the South in the day of segregation. In order to protect the financial position of a tiny percent of highly wealthy individuals the mainstream public is falsely led to believe that their problem lies not in a greedy, cynical elite but in politically weak minorities – blacks in the case of the South - gays, union members and teachers today.

- Some of the techniques that have been proposed are unconstitutional. James Surowiecki of the New Yorker writes that, “The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized. If the debt ceiling isn’t raised, we’ll face an absurd scenario in which Congress will have ordered the President to execute two laws that are flatly at odds with each other.” As the Review has noted, Congress’ budgetary duties are outlined in the Constitution; the debt ceiling is a non-constitional fiction devised out of political convenience. The former is Congress’ first responsibility.

- The super committee and triggers are clever devices aimed at further undermining the intent of the Constitution. While they might stand up in court, their effect will be the weakening of the Constitution and Congress’ role in creating a budget.

- The Republican right is creating a major danger of a continued or far deeper recession by the effects that budget cutting will have on jobs and the economy in general.

- Although much has been made in the media of the stock markets’ reaction to this battle, in fact the markets have been remarkably calm, just as they were when a continuation of 9% unemployment was announced. We need to face the fact that the markets no longer care as much about what happens in America as they once did. In fact, in a globalized economy, a 9% American unemployment rate and a badly weakened U.S. government looks good to the corporate elite.

The story so far. . . .

Glenn Ford, Black Agenda Report - Obama supporters whine and wring their hands in impotent fury, pointedly threatening a loss of enthusiasm for his 2012 re-election campaign. But their good cop president and his party leaders are all about pre-emptive compromise, meeting the bad cop Republicans half, three quarters or nine-tenths of the way to a goal that moves further rightward every hour. . . What if President Barack Obama never intended to fight for jobs or justice? What if he believes the nonsense about Wall Street being “job creators” instead of economic vampires? What if Cornel West finally got it right? What if Barack Obama is a Reagan Democrat in every meaningful way, right down to a fanatical belief in trickle down economics?

Business Insider - The "historic, bipartisan compromise" reached to raise the debt limit does not end the struggle to reign in the federal deficit — in fact, it pushes the most difficult decisions off into the future. More surprising, the debt deal actually cuts almost nothing now--it just promises future cuts that may or may not materialize. There are very few specific cuts in the deal — and the $1 trillion in immediate cuts are almost entirely constituted of caps on future spending. And those caps are not required to be honored by future congresses.

The "real" spending cuts to current programs will come out of a bipartisan committee of Representatives and Senators, which is charged with finding an additional $1.5 trillion in savings from the federal deficit. But White House and Republican leaders appear split on exactly what the so-called "Super Committee" can do.

The committee is modeled on "BRAC" or the Base Realignment and Closure Commission, whose recommendations are presented to Congress for a straight up-or-down vote with no amendments allowed. Instead of non-partisan commissioners, each congressional leader will appoint three members of Congress to the committee.

If the Super-Committee can't reach an agreement, or their recommendations cannot pass Congress, deep "real" spending cuts, which are painful to both sides, would take effect. For Democrats, entitlement cuts are at risk, while Republicans would see cuts to defense spending. Additionally, President Barack Obama has the ability to veto an extension of the Bush tax cuts if he deems the committee's solution insufficiently "balanced."

Dave Lindorff, Counterpunch - The chief economist at ratings agency Moodys is warning that the U.S. could be headed for a renewed recession. Calling the current situation "very perilous," John Lonski adds that the politicians in Washington, where both parties are vying to present budgets featuring massive cuts in spending, could help bring on that recession--just as the new Conservative Party-led government in Great Britain brought on a return to recession this year through its aggressive cutting of public spending. Worse yet, they could create a new shut-down in credit or "liquidity" in the financial industry that "could be more serious even than what caused the collapse of Lehman Brothers" in 2008.

Rep, Raul Grijalva, co-chair, Congressional Progressive Caucus - This deal does not even attempt to strike a balance between more cuts for the working people of America and a fairer contribution from millionaires and corporations. . .

The Democratic Party, no less than the Republican Party, is at a very serious crossroads at this moment. For decades Democrats have stood for a capable, meaningful government - a government that works for the people, not just the powerful, and that represents everyone fairly and equally. This deal weakens the Democratic Party as badly as it weakens the country. We have given much and received nothing in return.

A clean debt ceiling vote was the obvious way out of this, and many House Democrats have been saying so. Had that vote failed, the president should have exercised his Fourteenth Amendment responsibilities and ended this manufactured crisis.

Robert Reich - The deal does not raise taxes on America's wealthy and most fortunate -- who are now taking home a larger share of total income and wealth, and whose tax rates are already lower than they have been in eighty years. Yet it puts the nation's most important safety nets and public investments on the chopping block.

It also hobbles the capacity of the government to respond to the jobs and growth crisis. Added to the cuts already underway by state and local governments, the deal's spending cuts increase the odds of a double-dip recession. And the deal strengthens the political hand of the radical right.

The budget deficit is not the biggest obstacle to our prosperity. Lack of jobs and growth is. And the largest threat to our democracy is the emergence of a radical right capable of getting most of the ransom it demands.

World Socialist - Appearing on several television interview programs Sunday, Senator Charles Schumer of New York, the third-ranking Democrat, boasted of his party’s embrace of drastic cuts in social spending, which he portrayed as “a willingness to compromise.” Schumer declared, “There are people on the left who would probably say ‘no cuts,’ but they haven’t been able to have their way within our caucuses.”

There is virtually no discussion in the media or from any of the representatives of big business, Democratic or Republican, of the actual human cost of the cuts that are being discussed. Three trillion dollars in domestic spending over ten years is a gargantuan sum—at $300 billion a year, it would cover the annual deficits of all 50 states, twice over. It is more than the combined annual budgets of the departments of Education, Housing and Urban Development, Labor, Transportation, Agriculture and Veterans Affairs.

And it must be clear: these cuts are only the beginning. Spokesmen for the financial elite, such as the Wall Street Journal editorial board, are pressing for trillions in additional cuts, including the outright destruction of Medicare and Social Security, which are to be privatized and effectively abolished. Obama and the Democrats differ only on the tactical means for carrying out this historic assault on the working class.

In the final analysis, this social counterrevolution is an expression of the historical crisis and bankruptcy of American capitalism. The ruling class is determined to destroy every vestige of the gains won by American workers in a century of struggle in order to defend their own property and profits.

Paul Krugman, NY Times – The deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

James Surowiecki, New Yorker - The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized. If the debt ceiling isn’t raised, we’ll face an absurd scenario in which Congress will have ordered the President to execute two laws that are flatly at odds with each other. If he obeys the debt ceiling, he cannot spend the money that Congress has told him to spend, which is why most government functions will be shut down. Yet if he spends the money as Congress has authorized him to he’ll end up violating the debt ceiling.

You might think that there are benefits to putting negotiators under the gun. But, as the Dutch psychologist Carsten de Dreu has shown, time pressure tends to close minds, not open them. Under time pressure, negotiators tend to rely more on stereotypes and cognitive shortcuts. They don’t consider as wide a range of alternatives, and are more likely to jump to conclusions based on scanty evidence. Time pressure also reduces the chances that an agreement will be what psychologists call “integrative”—taking everyone’s interests and values into account.

Some more quotes collected by the Washington Post

Binyamin Appelbaum and Catherine Rampell, the Hill: The nation’s political leaders agreed on Sunday to spend and invest less money in the American economy, a step that economists said risks the reversal of a faltering recovery, in the hope of improving the nation’s long-term prosperity. . . Last week brought the disconcerting news that the economy grew no faster than the population during the first six months of the year, in part because of spending cuts by state and local governments. Now the federal government is cutting, too. ‘Unemployment will be higher than it would have been otherwise,’ Mohamed El-Erian, chief executive of the bond investment firm Pimco, said Sunday on ABC. ‘Growth will be lower than it would be otherwise. And inequality will be worse than it would be otherwise.’

Jonathan Chait: Going back to December, the Democrats committed a massive blunder by failing to push for a debt ceiling increase [when they still controlled the House]

Jacob Hacker and Oona Hathaway: Failing to raise the debt ceiling stops money already approved by Congress from being spent. If lawmakers see the debt ceiling as real, they will exercise less judgment in the ordinary budget process, on the reckless belief that fiscal restraint can somehow be imposed down the road. Legislative obstacles like the debt ceiling are a source of mischief, not precaution. . .

Matt Miller: Washington will do nothing more to boost jobs and growth. . . Our epic jobs crisis remains ignored.

Simon Johnson: Why was the financial crisis so devastating to the real economy? The answer is that, in large part, financial firms had become so highly leveraged, meaning they had very little real equity relative to their assets. This was a great way to boost profits during the economic boom, but when the markets turned, high leverage meant either that firms failed or had to be bailed out. . . Any true fiscal conservative should fight to strengthen the legislative and regulatory safeguards that aim to make the financial system less prone to collapse. Pushing for lower capital requirements in the financial system poses a major fiscal risk.”