Obama’s Other Card

Even as the political battle mounts over federal spending, the end result for federal policy is already visible — and clearly favors Republican goals of deep spending cuts and drastically fewer government services.

President Obama entered the fray last week to insist that federal deficits can’t be reduced through spending reductions alone. Federal tax revenue also must rise as part of whatever deficit reduction package Congress approves this summer, he said. Obama has been pushing to end a series of what he calls tax loopholes and tax breaks for the rich.

But even if Obama were to gain all the tax-law changes he wants, new revenue would make up only about 15 cents of each dollar in deficit reduction in the package. An agreement by the Republicans to accept new revenue would be a political victory for Obama because “no new taxes” has been such an article of faith for the GOP.

I think this analysis leaves out a critical piece of the calculation: the December 2012 expiration of the Bush tax cuts. Recall that Obama, above all else, is the “outcomes” President. He’s more than willing to take a temporary political setback or even a seeming political loss in the short term if that in turn leads to the long-term policy outcomes he prefers.

So: to get a deal on the debt ceiling he gives the GOP a fatter ratio of cuts to revenues for now. Keep in mind, these “cuts” are really a framework that then plays out over most of a decade and will ultimately be changed and tuned by several Presidents and Congresses (and that’s assuming they stick to the framework at all).
Next year though, assuming Obama’s reelected, everything changes on the revenue front. If the Congress simply fails to act, the full set of cuts expires. If they act, but the GOP includes extension of the cuts for those making more than ~$200k/yr, Obama vetoes it. And, really, if we assume that the GOP will fail in its efforts to destroy the economy in the next few weeks, Obama likely prefers one of those two outcomes. Why? Again, it’s because they are the best long-term outcomes for the country. That both reflect poorly on the GOP is a bonus side benefit going into the 2014 midterms. To be sure, a tax rise represents real short term pain for the less well off, but that pain yields long term stability and, let’s face it, sanity in the revenue structures of the United States.

Expiration of the Bush tax cuts is a key pillar in the “do nothing” solution for our current deficit/revenue issues. The assumption that all or most of them are going to expire if Obama is reelected needs to be included in any meaningful political calculus regarding the ratio of cuts to revenue increases in the current negotiation. Assuming expiration, you ultimately end up with a number of difficult but doable fixes that can be handled one at a time. If those “fixes” are, you know, paid for, the country will once again be on firm financial footing, complete with a reasonably robust social safety net for as far as the eye can see. This is precisely the outcome Obama is playing for.

Obama’s Other Card

How You Negotiate

In reference to this and this, I think I’ve been less clear than I could have been about how I think Obama and his team should proceed.

For the sake of discussion, let’s take as written the Ezra Klein 83:17 cuts:revenue breakdown. The GOP wanted 85:15 in March, got offered 83:17 (plus a lot of exactly-what type details) in June and walked out. This is their choice. But there has to be a price for that choice.

Since there’s no deal, we’re going to take the GOP’s advice and just pay the interest on the debt. Seems like our only choice, thanks to the GOP’s intransigence re: corporate jet tax breaks and such. So we start by telling seniors to be ready not to receive their Social Security checks in August; if this troubles them, they should call their Congressional representatives. Medicare providers will not be compensated for the foreseeable future; they will receive IOUs in lieu of payment as of August 1. Is this going to be a problem for you? Call the Congress. We tell Wall Street they’d best to do like Cantor and get out of Treasuries.
And, we make clear that the deal, as of right now and for a limited time only is going to be 80:20. Take it or leave it. But if you do leave it, on July 1 it becomes 70:30. July 15th it is 50:50. Want to see where we go on August 1?

Once the GOP actually starts losing things when they pull the old football away, they will stop using the tactic. And until they do start paying a price for it, they’d be foolish not to use the tactic. So far it’s gotten them everything they want and hung blame on the Democrat. That needs to stop. So: you make your case, you state the stakes in clear and unmistakeable language, and then you set the timeline for agreement. Take it or leave it.

At least the tile is cool

And so it’s (finally) come to this. Democratic Senators and various other denizens of Washington DC have recalled that, hey, that Constitution of ours specifically has something to say about the national debt:

The validity of the public debt of the United States, authorized by law […] shall not be questioned

Though a post-Civil War shim, it seems pretty applicable to this non-Constitutional-scholar. As the linked article states:

This is an issue that’s been raised in some private debate between senators as to whether in fact we can default, or whether that provision of the Constitution can be held up as preventing default,“ Sen. Chris Coons (D-Del.), an attorney, told The Huffington Post Tuesday. "I don’t think, as of a couple weeks ago, when this was first raised, it was seen as a pressing option. But I’ll tell you that it’s going to get a pretty strong second look as a way of saying, ‘Is there some way to save us from ourselves?’”

By declaring the debt ceiling unconstitutional, the White House could continue to meet its financial obligations, leaving Tea Party-backed Republicans in the difficult position of arguing against the plain wording of the Constitution. Bipartisan negotiators are debating the size of the cuts, now in the trillions, that will come along with raising the debt ceiling.

Is it really left to me to fill in how this path ends? I think the debt ceiling is as stupid as the next guy, and the hostage-taking debate over “whether or not” we raise it: even dumber and, frankly, dangerous to the economy. Obviously we are going to raise it. Every plan, from Ryan on down includes raising it. There is literally no other way forward regardless of your non-zero target for future federal budgets. The GOP and their media enablers act like this isn’t so, but it is. Sorry if I was the first one to let you in on that.
But: if you just blow through the entirely arbitrary ceiling and continue on as if nothing happened, mayhem will ensue. You’ll have to fight it out in court, where party-line rulings will be the norm, much as is happening with the far less divisive ACA or the Wisconsin brouhaha (and that’s saying something; WI included a Supreme Court Chambers strangling). The media, never one for issues with much complexity greater than, say, “Sam and Dianne: will they or won’t they?”, will simply report the horse race (that’s six rulings for a debt ceiling, seven against! Reactions at the top of the hour! But first, somebody’s cooch was briefly visible!!!). Ultimately, after a few years of this living hell for anyone that ever comes into contact with so much as a single federal dollar, the issue reaches the Supreme Court…and, well, then it basically comes down to who’s out sick that day and the particular details of Scalia’s ever-tortured logic. And he’s never out sick.
The Congress, meanwhile, will be irrevocably embroiled in endless impeachment proceedings or attendant “investigations” and simply gridlocked when not. You think anyone in the GOP is going to vote to release one cent after the debt ceiling hobby horse is simply taken away forever? Unless 2012 suddenly delivers Democratic super-majorities in both chambers, you’re shit out of luck. Then, substantive control of the government and its many critical functions basically boils down to Obama, individual departments, or the military essentially seizing control from and simply ignoring a Congress and broader government that has demonstrably ceased to operate and is endangering both itself and the lives of its citizens. I’m sure the markets will take this development with all the sober assessment that any Master of the Universe could muster. This outcome would please the Tumblr anarchy division, but few others. Frankly I’m just not quite ready to live out my remaining years trading pelts down by the nearest navigable river.

Government in this country, in any democracy, is ultimately about mutual consent. The minority has to consent to being governed by the majority. That is the only way that elections mean things, and because there are fewer of Major Party X as a result of said election(s), the minority party gets to contribute to but not control the legislative agenda and its terms. Since Obama’s election, an electoral landslide and the first non-plurality win in ~20 years, we’ve been operating without the consent of the GOP. It’s as though he stole the thing. Yes, the GOP has occasionally given consent, in fits and starts, when forced to (most often this came as a result of simply being overidden by then-large Democratic majorities). They’ve grudgingly agreed to a few votes that had to happen, but nothing else. By and large, though, the GOP has been allowed to operate in pure obstructionist fashion with no reprisal. Generally speaking, if you don’t take part in the act of governing in Congress, your ideas simply aren’t included. That simply hasn’t happened here. They’ve obstructed in numerous ostentatious ways and but also always gotten what they were demanding in the end even though they withdrew from the “governing majority” at some point in the process each time. It’s what Duncan Black refers to as the “Lucy and the football” system: extract compromises and painful alterations on the given bit of legislation, withdraw support, blame Democrat for problems caused by compromises and painful alterations. If possible: actually reverse position on issue such that you now oppose the very thing you demanded in the kabuki “serious adults talking” phase of the legislative sausage making.

Sooner or later, that’s the problem we have to fix. The majority, be it Democratic, Republican, Tea Klan, Quantum Presbyterian, or whatever has to be able to govern. Period. Uniform obstruction of all the business of government is unsustainable. It’s frankly incredible that we’ve stumbled along for this amount of time already. Only the public can force the change, though, whether through elections or sheer popular pressure (e.g. standing on the steps of the Capitol with pitchforks and torches). With a MSM showing no interest in educating the public as to the stakes, the debate, or even the vaguest terms of the issues at hand, it may just take the Social Security and military pay checks (and everything else) not showing up one morning to make the needed awakening happen. And the sooner we go through a convulsive spasm to clear the systemic poisons that currently have us writhing on the bathroom floor of democracy, the better off we’ll be.

At least the tile is cool

Making it Up

Across several posts, Dean Baker lays into the dread Liberal Media for just plain making it up when it comes to pushing their preferred, center-right “cut deficits now” agenda.

On the Washington Post:

“The national debt will exceed the size of the entire U.S. economy by 2021 — and balloon to nearly 200 percent of GDP within 25 years — without dramatic cuts to federal health and retirement programs or steep tax increases, congressional budget analysts said Wednesday.”

Actually, this is not what the projections showed. The CBO projections showed that if Congress simply followed current law, letting the Bush tax cuts expire, not fixing the alternative minimum tax, and most importantly, allowing the spending caps in the Affordable Care Act (ACA) to remain in place, then the debt to GDP ratio will soon stabilize and head downwards.

On the New York Times:

“The national debt is on pace to equal the annual size of the economy within a decade, levels that could provoke a European-style crisis unless policymakers take action on the federal deficit, according to a report by the Congressional Budget Office.”

This is not true. The CBO report did not warn of “a European-style crisis.” The reason it did not is that a European style crisis does not make sense in the context of the United States. The United States can never be like Greece or Ireland for the simply reason that we print out own currency.

In the event that we actually ran up against serious constraints in credit markets the United States would have the option to have the Fed buy up its debt. Greece and Ireland do not have this option. This could create a risk of inflation, but there is not the risk of insolvency that euro zone governments face.

On NPR:

In the top of the hour news segment on Morning Edition, NPR told listeners that the Congressional Budget Office warned that the national debt will soon equal the annual size of the economy and this could lead to a European-style crisis [see: New York Times above].

This is critically important stuff. Deep cuts right now will strangle the economy and deeply hurt Obama’s chance at reelection to boot. This, coupled with the knowledge that as conditions improve, the ability (in the form of public desire) to make huge cuts to the social safety net will diminish precipitously is precisely why the GOP is for deep cuts now. They know that doing nothing and simply letting the Bush tax cuts expire will do more for improved deficits than almost any of the “plans” on the table. The CBO has said so again and again. These “plans” are not and never will be about the deficit. They are about pushing a preferred social agenda. Period. We just can’t get anyone in the media to break free from their “view from nowhere, compromise must always be the preferable, serious person postion” lens for long enough to get them to even report the simple facts of the case at hand.

tl;dr: We’re doomed. There will be a default. Maybe not this time, but soon. Once you’ve set up the terms of debate such that they always include wrangling over lifting the debt ceiling and treating it essentially as a hostage situation, then you’ve created a system that, sooner or later, someone will push too far for their own purely political purposes. And when that happens it will be the end of America as we’ve known it. And I suspect that will be happening pretty damned soon.

Making it Up

The hard truth about health care

Everyone knows — or should know — that the United States spends much more than any other country on health care. But the Kaiser Family Foundation broke that spending down into two parts: the government’s share and the private sector’s share (both measured as a percentage of total gross domestic product), then compared the results to figures from 12 other countries that are members of the Organisation for Economic Co-operation and Development. And here’s the shocker: Our government spends more on health care than the governments of Japan, Australia, Norway, the United Kingdom, Spain, Italy, Canada or Switzerland.

Think about that for a minute. Canada has a single-payer health-care system. The government is the only insurer of any note. The United Kingdom has a socialized system, in which the government is not only the sole insurer of note but also employs most of the doctors and nurses and runs most of the hospitals. And yet, measured as a share of the economy, our government health-care system is the largest of the bunch.

And it’s worse than that: Atop our giant government health-care sector, we have an even more giant private health-care sector. Altogether, we’re spending about 16 percent of the GDP on health care. No other country even tops 12 percent. Which means we’ve got the worst of both worlds: huge government and high costs.

It’s also important to note that, even with this high spending, we’re getting worse outcomes than all the Western countries spending 5-7x less than we do. And, of course, if we had the costs of any of these countries we’d be facing surpluses today instead of deficits. But we’re told the only road forward for our country is to slash Medicare, Medicaid, and the rest of the social safety net and give the money to the richest 1%. Saying anything else isn’t Serious.

The hard truth about health care

2.96

Emphasis added:

…if even 1/50 of the austerity-induced decline in current output flows through to reduce the economy’s productive potential, that austerity today worsens the debt burden.

This is an unusual result: it applies only to a country with a substantial fiscal multiplier that can fund its debt at very low interest rates. But we are a country with a substantial fiscal multiplier that can fund it’s debt at very low interest rates…

Indeed we are. But no one seems interested in noticing. We can borrow against a 10-year Treasury at a 2.96% yield. The money behind that rate is clearly not concerned with either deficits or the capability of the United States to meet the debt incurred by their purchase yesterday or all the days before that. As Jared Bernstein notes, the current “budget math” still strongly favors a jobs target and not a deficit target.

This is very simple stuff. How many ways do you have to prove that cuts today worsen our long-term fiscal situation before somebody with a D after their name starts talking about this in a compelling, no-nonsense fashion? We can borrow, cheaply, and those dollars (when pumped into the economy) would hasten the closing of our current output gap. This would simultaneously a) obviate the need for further borrowing, b) close the revenue shortfalls of Great Recession, and c) coupled with a do-nothing legislative approach relative to the Bush tax cuts would almost entirely close the existing budget deficits within a few years.

But, by all means, let’s go on pretending that deep, punitive cuts to the social safety net and eliminating access to abortions are the only Serious Person positions possible given the current situation.

2.96

Suck it, Granny

Brian Buetler, TPM: If the Biden group comes up with big cuts, trillions of dollars worth of cuts, but without substantially [cutting] Medicare, it won’t get your vote?
Mitch McConnell (R, KY), Senate minority leader: Correct
Lemkin: I mean, what’s the point of governing if you can’t tell a few old people who’ve finally run out of money to kindly go die in the streets? They should have thought of this before they agreed to take part in Medicare and/or get sick. It’s all about personal choices. Also: Death panels. Real ones. Run by Mitch McConnell and his cronies. Trillions in cuts aren’t the point of any “deficit reduction” talk by the GOP. All they want, all they have ever wanted is an excuse to foist the same old laundry list of punitive attacks on the social safety net coupled to lavish giveaways to their chosen few at the very top. That is all this is, was, or ever will be about. Time for the Democrats to start messaging accordingly. Well past time, in fact. After all, Mitch McConnell stands a pretty good chance of being Senate majority leader in 2013.

A number of economists tell us if we can cut spending it will lead to a better environment for job creation in America

John Boehner, Speaker of the House.
Exactly what number of economists would that be, John? One? Two? Because the vast preponderance of economists, at least those located anywhere on the Earth think otherwise. And you don’t have to throw your lot in with a bunch of pointy-headed intellectuals either, because that’s an experiment that’s been tried. In fact, they’re trying it right now in the UK and, hey presto!, it’s costing jobs not creating them. And the UK’s experience is far from being an outlier in this regard. Cutting government spending to “create” jobs is something that’s never been shown to, you know, work. Ever.

Robert Reich: The Republican Death Wish

Oh hell yes:

robertreich:

Can we be clear about that budget problem? It’s driven not by Medicare. It’s driven by the same relentlessly soaring health-care costs that are pushing premiums through the roof and causing middle-class families to shell out more and more money for deductibles and co-payments.

Some features of Obama’s new healthcare law will slow the rise — insurance exchanges, for example, could give consumers clearer comparative information about what they’re getting for their insurance payments — but the law doesn’t go nearly far enough.

That’s why Democrats should be saying this: We need to allow anyone to sign up for Medicare. Medicare is cheaper than private insurance because its administrative costs are so much lower, and it has vast economies of scale.

If Medicare were allowed to use its potential bargaining leverage over America’s hospitals, doctors, drug companies, and medical providers, it could drive down costs even further.

And it could force the nation’s broken health-care system to do something it must do but has resisted with a vengeance: Focus on healthy outcomes rather on costly inputs. If Medicare paid for results — not tests, procedures, drugs, and hospital stays, but results — it could give Americans better health at lower cost.

Emphasis added to point out that this is exactly what Democrats need to be saying. The steadily rising cost of Medicare is only indicative of the problem, it is not the problem. Never was, never will be. Paul Ryan wants to “solve” the issue by simply setting an amount that the government will pay and then telling anyone who can’t meet the difference to kindly go die in the streets.

Democrats, on the other hand, want to solve the problem by solving the problem. And how does the GOP respond? By trying to undo the ACA and any other cost-containment measure. By trying to end Medicare. And, of course, by redirecting the money harvested from the end of Medicare to the richest of the rich. Who so desperately need it.

Robert Reich: The Republican Death Wish

The Kitchen Table

I’ve said before that the “kitchen table” meme needs to die. But before it shuffles off this mortal coil, President Obama should put it to use one more time:

“My fellow Americans, we in the United States are like so many of you, sitting at your kitchen table and wondering where to come up with money to cover an unexpected expense while still keeping the lights on and food on the table. As you may have heard, the National Bureau of Economic Research recently reported that most Americans couldn’t produce $2000 on short notice without selling possessions or finding a lender to borrow it from. The government faces these questions all the time; like right now, with some members of Congress moving to prevent us from providing emergency funds to help the victims of the terrible tornado in Joplin, Missouri.

"In some ways, the problems of deficits and the debt that the federal government accumulates are no different from you, at your kitchen table, trying to come up with that desperately needed $2000 on short notice. As you all know, the United States has seen historic shortfalls over the last several years as government income has dropped dramatically as a direct result of the downturn in the global economy. At the same time, of course, we’ve had to increase various outlays and spending just to maintain existing programs or fund new recovery efforts and, of course, continue fighting two wars.

"Now, because of all this, we in the government find ourselves sitting around our kitchen table talking about the budget and our debts. The Democrats in Congress and I have suggested various cuts and other ways to tighten our belts, just like all of you have had to do through this time of economic hardship and struggle; but we also believe that since the government can currently borrow at historically low rates, we should take advantage of that capability while it’s here. More to the point: we think it would be foolish not to. It’s the difference between spending on large, unnecessary purchases and recognizing a genuine opportunity that also carries with it a long-term but sustainable debt. Much like when you bought your first home, or a car, or started a small business and the bank ensured that you could actually meet the payments at the interest rates offered; in the same way, the world market believes that the US government will remain solvent and thus continues to offer money at very low interest. This will not always be so, but we Democrats believe we should take advantage of it while we can and that we should use that extra buying power to empower the American economy on its road to recovery.

"The Republicans, on the other hand, are suggesting that we sell the furniture at whatever price the first person offers us, put the children to work at dangerous jobs, eat tainted food and dirty water to save a few cents, and finally default on our existing financial obligations such that we can pay down that mortgage on the house as quickly as possible, even if that action means incurring penalties, and they want to do all of this despite the fact that we have access to stable, reasonable long term interest rates and also have the wherewithal to make payments long into the foreseeable future. It’s like they want us to finance a car on a high interest credit card instead of through a traditional bank loan just because they want to give the people at the credit card company some more money. It doesn’t make any financial sense for the country and only functions to create wealth for the handfull of people at the very top of the financial system.

"I think I know which road you as Americans want us to take. So why not sit down at that kitchen table of yours and write or call your Congressperson and let them know?

"Thank you for listening. Good night, and good luck.”