Tag Archives: debt ceiling

Debt ceiling impact: 1.8 million fewer jobs, 1.5% reduction in GDP

Need more proof that the forced austerity being trumpeted by the folks in Washington is a bad idea?  The Economic Policy Institute released its analysis of the debt ceiling deal, and it’s a pretty ugly sight.  The spending reductions, combined with the other provisions (no more extension of unemployment benefits, ending the payroll tax holiday), are going to reduce employment by 1.8 million jobs and reduce GDP by 1.5%, which would at recent growth rates, mean that a return to recession is a very real possibility.

These sort of results would be disastrous — undercutting the recovery while capping spending is how you lock in decades of high unemployment and low growth.  The last ten years were awful for working families in this country, and our political class in Washington (in both parties) seem dead-set on trying to make this decade even worse.


The certainty myth

The recent fight over the debt ceiling has featured a lot of talk about “certainty”.  Specifically, how a lack of certainty about government regulation and the perceived excess spending by the federal government.

This has been a favorite line of conservatives to explain the economy’s weak performance.  How can companies grow with health care reform ramping up and Dodd-Frank waiting to get implemented and the Obama Administration advocating expiration of some of the Bush tax cuts?

And — if you don’t really think about it too deeply — it all sounds perfectly logical.  But, in fact, it’s not how business really operates.  Sure — all other things being equal — a stable regulatory environment is better for business than not.

But when in American history have businesses been assured of stability?  Business is not, nor has it ever been stable or predictable.  And it should never be.

Besides, we know that the real uncertainty that is causing businesses not to hire and not to expand is uncertainty of demand — not of government regulation.  Consumers have retrenched since the 2008 housing crisis and subsequent recession — doubling their personal savings.

When you have an economy that is 70% driven by consumer demand, a 2-3% reduction in spending is significant.  In fact, we see that the economy is still about $1 trillion in demand behind pre-recession levels, and some economists peg the total lost demand since 2008 at nearly $6 trillion.  You see now why a $800 billion stimulus package didn’t make everything sunshine-and-roses — it was far too small to turn the economy around on its own.

At a time when we’re fighting three wars and are still recovering from the worst recession in 70 years — one that was largely caused by bad actors in our corporate community — it’s foolish to be a business and assume stability and even more foolish to be a citizen or a legislator and take steps to immunize business from the aftereffects of problems that they helped to create.

The Clean Air Act and Clean Water Act — instituted in its modern form by Republican Richard Nixon — were a response to corporate failures to be good citizens.  Sarbanes-Oxley, instituted in 2002 by Republican George W. Bush, was a response to numerous failures of corporations to live by the normal rules of the market.  These were bipartisan reforms designed to protect Americans from corporate malfeasance.

Today, such normal logic has been turned on its head.

The Dodd-Frank bill, a relatively mild response to the Wall Street meltdown that tanked the economy languished in Congress for nearly two years before being passed on essentially a party-line vote.  Banks that were “too big to fail” before are now bigger thanks to federal action that allowed them to vacuum up the other banks of similar size.

Modest consumer protections — such as the establishment of the Consumer Financial Protection Bureau — that would require such radical steps as simplifying mortgage disclosure forms so you don’t have to be an attorney to understand them, improving transparency of credit card agreements, and trying to provide deeper understanding to consumers of how credit scores work are attacked as “big government” trying to control your life.

The one surefire way to get this economy up and running again is to stop putting the needs of corporations and the wealthiest among us ahead of the needs of the larger population.  We need to stimulate demand among the working classes.  How do we do that?  Investment in education.  Investment in infrastructure.  Investment in health care.  Investment in new technology.

This is not the time for forced austerity.  We are never going to solve our current fiscal problems without growing this economy.

Now is the time for selected and targeted investment in those things that will drive growth in the future and protect the vulnerable in our society, while aggressively weeding out and cutting other programs.  We can’t allow special interests to go to the front of the line and cripple our economic recovery at the expense of the American people.

The Town, Washington Post Director’s Cut edition

Yesterday, Speaker of the House John Boehner had a meeting with his caucus in order to rally support for his plan to resolve the debt ceiling crisis.  As part of the meeting, House Majority Whip Kevin McCarthy showed the group a clip from the movie The Town to fire up the troops.  Here’s how the Washington Post recounted the critical part of the scene:

One character asks his friend: “I need your help. I can’t tell you what it is. You can never ask me about it later.”

“Whose car are we gonna take,” the character says.

And here’s the scene itself from the movie:

Did you catch it?  The Post left out the last line of the dialogue from Ben Affleck’s character:  “And we’re going to hurt some people.”  No ellipsis to indicate a line was left out.  Why would the Post not give the full dialogue?  Is the Post supposed to be in the business of covering up for politicians?

How did the gathered Republicans react to the clip?

After showing the clip, Rep. Allen West (R-Fla.), one of the most outspoken critics of leadership among the 87 freshmen, stood up to speak, according to GOP aides.

“I’m ready to drive the car,” West replied.

Right off the cliff, no doubt.

[h/t MNPublius]

Republicans driving the car over a cliff

When he was White House Chief of Staff, Rahm Emanuel famously said “Never allow a crisis to go to waste.”  Republicans in Washington D.C. have certainly learned that rule, and learned it well.  So much so that they are in the process of manufacturing a crisis in order to create the opportunity to get reforms they feel are necessary.

Let’s leave aside for the purposes of this post the sheer absurdity of the notion that after having passed a budget that increases the amount of the national debt over the debt ceiling that Congress then has to re-approve spending to that level.  What Congressional Republicans are doing right now is even more reckless than how Minnesota Republicans handled budget negotiations over the last few months.

President Obama has offered significant spending cuts and pared back his tax increases to the bare minimum.  In fact, what President Obama has offered as part of these negotiations is well to the right of Alan Simpson-Erskine Bowles Bipartisan Deficit Commission, the Senate  “Gang of Six”,  and the Alice Rivlin-Pete Domenici Deficit Commission.

President Obama has offered a plan that is almost 4:1 spending cuts to revenue increases.  The revenue increases consist of eliminating loopholes, subsidies, and deductions — many of which Republicans have supported in the past.  The tax code should not be used to pick winners and losers, but rather to ensure a level playing field and to provide the necessary resources for government to perform its functions.  They would be accompanied by a lowering of rates overall to make the changes generate far less revenue than they otherwise would.  This used to be a core Republican value.

Normal people would jump at such a deal — a chance for real entitlement reform ($650 billion in savings over the next 10 years), real cuts in discretionary spending ($1 trillion over the next 10 years, taking such spending back to pre-WWII levels), and rational tax reform that generates about 20% of the overall solution.

But today’s Republicans aren’t normal.  They are devoted to “no new tax” ideology at any cost.  They are willing to drive the car off the cliff as opposed to forcing their wealthy and corporate patrons — who have benefitted the most over the past decade while the labor market and median incomes for the rest of us have stagnated — to chip in just a little bit more.

If Congressional Republicans can’t come to an agreement on the debt ceiling and the country goes into default, they will effectively raise the taxes of every American through increased interest rates.  Our stock market will feel the impact of lost confidence of investors.  There could even be a run on the banks.  This is not a risk we should even be considering, but Republicans are still — even at this late date — still holding out for complete capitulation from the President.

We shouldn’t also fail to point the rank hypocrisy of many of the Congressional Republicans at the heart of this crisis today.  During the Bush Administration, these same leaders voted seven times to raise the debt ceiling — from $5.95 trillion to $11.315 trillion.  They also voted for policies that destroyed our financial future.  As the New York Times pointed out over the weekend, if you take out the impacts of the recession and only look at policy changes, what happened in the Bush Administration caused far more damage than anything that has happened under President Obama (even extending out the impacts of the Obama policy changes to 2017).  Note that the cost of the Bush tax cuts alone is more than all of the policy changes under President Obama combined.

It’s time to stop the false equivalency.  There is a very real difference between Democrats and Republicans — both in Washington D.C. and in St. Paul.  Democrats aren’t willing to put their partisan goals ahead of the well-being of the American people.  Republicans are seemingly content to “take hostages” — including the American economy — to fulfill their ideological goals.

Compromise isn’t a dirty word.  Compromise isn’t weakness.  Compromise is necessary in a divided government, and it’s time Republicans started getting back to doing the serious work of the people instead of being led around by their special interest groups.

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