Tuesday, July 12, 2011

Republicans Can't Do Anything

Republicans can’t let the country reach the debt ceiling! That would trigger a US debt default, an economic collapse, a constitutional crisis, and a deep depression. Republicans will have to raise the debt ceiling...

Republicans can’t vote to raise the debt ceiling! The government already borrows too much money. Republicans can only raise the debt ceiling if there is also a comprehensive plan to reduce the deficit by trillions of dollars...

Republicans can’t vote for a comprehensive deficit reduction plan! A deficit reduction agreement will require us to increase revenue. Republicans are the anti-tax party. They can’t vote to raise taxes. Republicans will have to let the country hit the debt ceiling.


Monday, July 11, 2011

Debt Ceiling Explained

One problems with the current debt ceiling debate is that there appears to be widespread confusion about what exactly we are talking about. Much of the reporting focuses on the horse race and the daily-back-and-forth of the negotiations. Less effort has been expend trying to explain what the debt ceiling is, why we might wish to see it raised, and what will happen if we do not. It’s boring. It’s complicated. It involves absurdly large sums of money that we can’t really relate to. Worst of all, the topic is, currently, very political. Just wading in to try and understand it means getting caught in the crossfire of accusations.

But it’s important we understand what’s going on and what is at stake. Really important.

At the basic level, the debt ceiling is a pretty simple concept. The US government borrows lots of money to meet its various obligations. The debt ceiling was created by a law passed in 1917 and it determines the total amount of debt the government can have. It’s the limit on the US government’s credit card. It’s a self-imposed limit. The debt limit was created by an act of congress. It can be, and regularly is, increased by congress.

The US has reached the limit. We’ve borrowed all of the $14.3 trillion allowed. Unless the debt ceiling is increased, or a portion of the debt is paid off, the United States government can not borrow any money, at any rate, for any purpose. Ever.

Is that such a bad thing? If I’ve maxed out my credit card shouldn’t I try and pay some of it off instead of trying to increase my limit? Shouldn’t government balance its budget and live within its means?

In general, the answer is “yes”. The government should try to balance its budget. But it is also vitally important that government not cut off its own ability to borrow. There are times when we’re going to want to run a deficit.

For example:

Suppose the United States were to become involved in a war in another country. We might want to be able to conduct the war, and incur the inevitable expenses, even if we have not collected the taxes to pay for it all in advance.

Imagine we had an economic crisis. We might want our government to be able respond to that crisis and borrow money to support institutions that are essential to our economy and our future prosperity.

What if we had a period of very high unemployment? When the economy is in bad shape people need more government support but tax collection is falling as people lose their jobs. Without deficit spending the government has to cut back sharply just when people need it most.

Maybe we think that low taxes are a good idea in and of themselves. If we think low taxes increase liberty and prosperity and are important to economic growth, we might decide to keep taxes low and run a deficit rather than increase taxes to balance the budget.

How will we handle advances in medical science? We can live longer and healthier lives. But medical advances come at a considerable cost. We might choose these advances that improve and extend our lives and livelihood over a clean balance sheet.

Nature can be full of surprises. When there is a tornado, or a flood, or a drought we look to government to help mitigate the disaster.  A government that can’t borrow money won’t have the resources to deal with the unexpected.

And of course there is no guarantee that these issues will crop up one at a time. We might have to deal with several problems all at once.

A government that can not borrow money will be unable to deal with military conflict, ideological rigidity, an aging population, or any form of natural or economic calamity. This will create long-term difficulties.

There are times when we will want to run a deficit. Both of our major national parties agree that right now is one of those times. This spring the Republican controlled House and the Democratic Senate agreed to an annual budget that calls for $1.3 trillion in deficit spending.

That $1.3 trillion represents 44% of the federal budget. For every dollar the government spent $0.56 came from taxes and revenue and $0.44 was borrowed. If the debt ceiling is not raised then the United Stated government will not be able to meet 44% of its obligations.

It is difficult to overstate the implications of a sudden 44% federal contraction. Every month the federal government makes around 80 million payments to a wide variety of individuals and institutions. Soldiers, senior citizens, hospitals, doctors, contractors, federal employees, suppliers, researchers, law enforcement, holders of public debt, etc...  Every one of these recipients is getting money from the federal government because a law was passed saying they are entitled to it. Behind each of these payments is a program, an appropriation, a law or a budget agreement that is just as real, lawful, and binding as the debt ceiling law.

If the debt ceiling is not raised then 44% of those obligations can not be paid. Each one of those recipients is entitled to the money. They are entitled to sue the government seeking the funds that we are contractually obligated to pay them. The government will have no means of meeting its obligations and it will default.

In addition to national default. All the people expecting to get all of those billions of dollars will, suddenly, not be getting them. Employers won’t be able to make payroll, hospitals will not be able to pay their bills, federal employees won’t get their paychecks and won’t be able to pay their mortgages.

Running up against the debt ceiling would not be one-time event. It would be a permanent condition. The debts, obligations, and needs we have in 2011 are not going to go away in 2012 or 2013. Millions of federal contractors and employees who are not getting paid and are suing the government will make things worse. The international community will rapidly withdraw its funds from the US. They will invest in other nations that have not abandoned their obligations.

Failure to raise the debt ceiling would be like the economic collapse of 2008 combined with a permanent government shutdown.

So... we should raise the debt ceiling.

The good news is that the economic cataclysm can be averted by calling a vote to avert it.

The bad news is that many of our elected representatives are refusing to do so.

Saturday, July 2, 2011

Debt Ceiling End Game

The Washington Republicans have taken our economy hostage, threatened to kill it if their demands are not met, and walked away from the negotiations. How should the President and the Democrats respond to this? The clock is ticking towards disaster. How is the standoff going to end?

The GOP seem to think that since the President cares about his country, and would prefer not to see an economic cataclysm, that the he will give into their demands. The debt ceiling vote is the only chip they are willing to put on table. They think it should be worth several trillion dollars in spending cuts.

As chips go, the value of the debt ceiling increase has to have a value of precisely nothing. Regardless of who gets the blame, a US debt default and sudden federal contraction will be devastating to futures and fortunes to Americans regardless of party. The Republicans have made a threat they can’t possibly follow through on.

This doesn’t mean the deficit reduction talks can’t be productive or that they shouldn’t resume. But it needs to be a negotiation and not a hostage situation.

There are a few ways this can play out. In order of desirability they are:

1. Congress and the President reach an agreement on long-term debt reduction. They also vote to increase the debt ceiling.

2. The debt ceiling is simply raised without any any other agreements.

3. There’s no agreement on anything. Obama claims the debt ceiling is unconstitutional and resumes borrowing. The US does not default on its debts. There is no sudden economic collapse. The US political system is demonstrated to be deeply dysfunctional.

4. The Democrats give in the GOP’s economic extortion and just given them whatever they want in exchange for an debt ceiling increase. The terrorists win.

5. There’s no agreement. There’s no debt limit increase. Obama accepts this. The US defaults on its debt. The federal budget is immediately slashed by 44%. The economy collapses. Again.

What will really happen?

Despite the current impasse. I’m going to bet on #1. There will be a negotiated solution.

The administration has already agreed substantial spending cuts. And they should. We’re in our third year of trillion dollar deficits. We need a path towards a sustainable budget and we’ll need spending cuts to get there. We’ll also need revenue increases. The President to right to insist on those. The GOP is being childish to assert revenue can’t be part of debt reduction solution. It has to be.  But a long term deficit agreement this summer can be lopsided in favor of cuts over revenue. The major Bush/Obama tax cuts are expiring after 2012. This affords us time to reconsider long term tax policy. If no agreement is forged the outcome is higher taxes and lower deficits.

The other likely outcome is #3. The GOP has painted itself into a corner with it’s own rhetoric. It’s not clear that House majority can, or will, consider a negotiated solution to the crisis they have created. They may steer the country towards deliberate bankruptcy. If that happens then President Obama must ignore the debt ceiling legislation and assert his authority to insure the nation does not enter insolvency.

This outcome has certain advantages for Washington Republicans. They avoid a vote on the debt ceiling. They don’t have to vote to increase revenue or to close tax loopholes for oil companies or jet owners. The GOP and it’s enablers will howl that the President’s actions are illegal. It will require considerable chutzpah to demand national disaster. But I’m confident the right-wing propaganda machine is up to the task.

There are downsides to the GOP for an Obama-averted default. Deficits would continue to rise. This outcome would be the ultimate abdication of legislative responsibility in the service of rigid ideology.

Will the GOP choose it anyhow? We shall see...


In the 1998 Micheal Bay thriller Armageddon there’s this giant asteroid on it’s way to destroy the earth. Naturally, it’s up to Bruce Willis and his plucky, quirky companions to saved the world. But before they do, they have some demands.

“We don’t want to have to pay taxes. Ever.”

When I first saw this scene I thought to myself: Well, that’s pretty stupid. In the face certain calamity nobody could possibly be so petty. If there’s a pending disaster that will destroy you and everyone you hold dear, how could someone with the power to avert this catastrophe refuse to so? So they can argue over tax rates? Who could be that craven and stupid?

After watching the debt ceiling debate in Washington, we have our answer. The entire Washington GOP is precisely that craven and stupid.

First the GOP took the incredibly irresponsible step of taking the US economy hostage. They are threatening to destroy it by refusing the raise the debt ceiling unless the Democrats agree to trillions of dollars in spending cuts. Now, the Republicans have walked out of the negotiations, after trillions of dollars of spending cuts have been agreed to, because the Democrats has also suggested revenue increases.

This is madness. Unlike, Bruce Wills the GOP isn’t even being asked to climb a rocket and blow up a giant asteroid. If they want to avoid economic armageddon all they have to is call a vote to avert it. The fact that they refuse to do so tells you how irresponsible they have become.