Debt Limit Grab Bag

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40 Responses

  1. North says:

    You have an interesting take on Boehner and somewhat counterintuitive to my eyes. Both to the polls which seem to suggest Obama won this messaging war as well as the real politic issues where Boehner has, repeatedly, accepted potential deals only to see them crushed by his own caucus in congress. This strikes me as making Boehner appear unable to deliver his own side which naturally leads one to ask what the use is in negotiating with him. If anything it seems to me that Cantor is coming out ahead since he appears to have successfully pinned Boehner between the rock of where he needs to get his party to go and the hard place of where his Tea Party members are unwilling to go and blame him for steering towards. Maybe you know something about the GOP dynamic I don’t but it seems to me like Cantor is going to take Boehner’s job.Report

  2. Rufus F. says:

    This is a really shrewd post. Somewhere around here I posted about my problems with the Tea Party and populism more generally. The summary is that, if you define the will of the people as simply = wise and good policy in a 1 to 1 relation, it’s really hard to change plans or self-criticise. Say what you want about the two parties now, but they work best when they can shift gears if experience suggests they should. With the Tea Party, if the people want X, it’s a good idea and not giving them X is undemocratic. Fine, but what ill could result from giving them X that could make them think X wasn’t a good idea? Especially since some damage to the government will result and that’s a goal in itself. I keep thinking of Lenin’s wretched concept of “the worse the better”.Report

    • Koz in reply to Rufus F. says:

      Thanks Rufus. “The worse the better” is part of the anger I mentioned. The underlying issue that above all else, the Tea Parties refuse to be ignored.

      I wish I could say that they didn’t have to do this, but frankly I’m not sure about that one way or the other.Report

  3. Koz says:

    “Both to the polls which seem to suggest Obama won this messaging war as well as the real politic issues where Boehner has, repeatedly, accepted potential deals only to see them crushed by his own caucus in congress.”

    I don’t see that at all, in fact I see that as the biggest remaining unknown in the equation.

    There never was a deal between Boehner and Obama. In fact, the reason those negotiations broke down was because Obama walked back on tax revenues that he had previously given up (this is supported by reports from both sides btw).

    There’s never been a situation where Boehner agreed to something and couldn’t get enough of the GOP caucus to go for. In fact, that’s the good thing that happened for the GOP last week, the perception that most of the GOP will go for a deal Boehner signs off on.Report

    • Stillwater in reply to Koz says:

      There’s never been a situation where Boehner agreed to something and couldn’t get enough of the GOP caucus to go for.

      That’s because Boehner understood where his Speaker power actually resided: with the Teaparty. By my lights, there have been plenty of deals which he personally would have accepted but refused because he knew the TPers would not only deny the deal, but in so doing undermine his leadership. It’s not Boehner that’s driving the deal-making, it’s the Teaparty. He’s politically powerless.Report

      • Koz in reply to Stillwater says:

        Au contraire, I haven’t heard of any such deals and I’ve been watching the developments pretty closely.

        Part of the issue is that the President has been especially weaselly. According to media reports, just a few days ago he was reinstate tax increases that he had agreed to forgo just a few days earlier. For weeks and weeks, we never had any real concrete statement of the President’s position. In fact, we still don’t. What we do have is his apparent willingness to acquiesce to Sen. Reid’s plan, and hopefully that will be enough.Report

        • Stillwater in reply to Koz says:

          I haven’t heard of any such deals and I’ve been watching the developments pretty closely.

          Exactly. Because he knows, or rather through this entire ‘negotiation process’ has been acutely aware, that he couldn’t make a deal, he could only hold out for more concessions from Democrats to appease the TP.

          Boehner has known all along that only extreme revisions in spending/revenue would make the Teaparty happy. When you say ‘he could make a deal and bring along the votes’, you’re suggesting – at least in my understanding – a power Boehner simply does not have. He cannot lead his caucus by getting the TP to agree to a deal. He’s waiting to publicly agree to a deal the TP signs off on.Report

          • Koz in reply to Stillwater says:

            That’s unknown to a large extent but I suspect you’re ignoring the developments of the last week where the Republicans in the House have coalesced around the Speaker.

            In any case, I suspect we’ll know pretty quick. It looks like they’re going to have a vote in the House on the Boehner bill, with the intent of passing it with few if any Demo’s. If that goes through we should hope something will get done before next Monday.Report

    • tom van dyke in reply to Koz says:

      Anybody who gets their news only from “approved” sources like CNN doesn’t know what’s going. This isn’t to say the truth lies in the rightosphere, but there’s so much spin and so little info that few if any have a real handle on this.

      There’s not going to be a default unless the President creates one. The GOP knows well they’ll be blamed, Tea Party be hanged.

      I like Byron York. Until you hear his take on anything, you haven’t heard the whole story.

      This point has not been touched on here:

      Meanwhile, the Aug. 2 debt deadline, which may or may not be firm, approaches. A Standard & Poor’s analyst said recently that the issue is not so much raising the debt ceiling as lowering the trajectory of federal budget deficits.Report

      • Koz in reply to tom van dyke says:

        There won’t be a default. On the other hand, the instant denial of funding to multitudes of government programs will be plenty bad by itself. McArdle had a good post about that a day or so ago.

        You do make a good point about the drop-dead date. It very well might not be Aug 2, and in fact the reality that the drop-dead date is fluid is one reason why the GOP is fighting this battle here rather than the shutdown wars in April imo.Report

  4. Jason Kuznicki says:

    I’m surprised to find myself mostly in agreement with the above.

    I’d only add that the consensus among economists of all political persuasions is that risking default is a very, very, very, very bad idea. The minority of conservatives who disagree simply aren’t credible. If a Greek default would severely hurt the world economy, by what pretzel logic does ours leave it untouched?

    I’m admittedly far from an expert in macroeconomics, but I know what the experts are saying, and they’re worried.Report

  5. Koz says:

    “And there’s a significant cohort of moderates, weakly-aligned conservatives and weakly-aligned liberals who would like to vote Republican in 2012. But given what’s happened in the last month or so, they’ll be thinking twice.”

    I hope Will will forgive me for copying his comment, but this is pretty much a textbook example.Report

  6. Rufus F. says:

    I know lots of people have gripes about Standard & Poor’s, but their best guess about what happens after default is this:
    “Failure to pay off maturing debt or missing interest payments (approximately $62 billion of interest is payable on Aug. 15) would constitute a selective default pursuant to our criteria, and Standard & Poor’s expects it would lower the sovereign rating to ‘SD’. Even if the Fed and other central banks managed to keep the financial system functioning, we expect that markets around the world would be severely damaged. In such a hypothetical scenario, we expect that equity markets would generally plunge, borrowing costs and interbank lending rates would soar, and corporate credit markets would be closed to all but the highest quality issuers. We envisage that consumers and businesses would likely stop spending on all but essential items, and the value of the dollar would drop by 10% or more against other major currencies. With the dollar heading lower, investors would likely look for hard assets like oil and other commodities, driving prices higher.”

    Even if this turns out to be a worst case scenario, I’d love to hear a good argument for why this point in the recovery is a great time to roll the dice on default.Report

    • Stillwater in reply to Rufus F. says:

      I’d love to hear a good argument for why this point in the recovery is a great time to roll the dice on default.

      Politics. The Teaparty is willing to default to win this for political as well as ideological reasons (it’s obvious at this point, isn’t it?). What’s happening in congress right now is an object lesson in pure power politics: how much can you extract from your opponent with the leverage you have. And they’ve already won! They’re getting more of their policy prerogatives than their limited power ought to entail. In fact, they’ve gotten almost everything. But they still want more.Report

    • Jason Kuznicki in reply to Rufus F. says:

      The media throwaway line about predictions like these is that analysts got it all wrong in the financial crisis, so why listen to them now?

      This strikes me as very dangerous, as we already know quite well what default tends to look like, and if there are exceptions to that picture, I’m not aware of them. I’m pretty sure they know what’s going to happen, and if anything, they are being too optimistic.Report

      • Mike Schilling in reply to Jason Kuznicki says:

        And it makes no sense. If the analysts downgrade debt, the interest rate on it will go up, regardless of whether the downgrade is a good prediction of added risk or not.Report

  7. RTod says:

    Koz –

    I have substantive to add to your thorough analysis, which I think is thoughtful, insightful and on the mark. We disagree about so much in the commenting threads I will confess that I started reading this prepared to oppose whatever you were going to say.

    Shame on me. This was just fantastic. Nicely done.Report

  8. Jeff says:

    “let’s dial back a few parts of our contemporary Leviathan: the Americans with Disabilities Act, Title IX, the light bulb ban, endangered species/wetlands protection enforcement, etc. ”

    “Let’s cut back on the things that don’t impact ME. The blind, women, wetlands vital to the ecology, they can go hang as long as **I** get what I want!! Oh, and taking money from the poor and elderly in the form of Social Security and MediCare cuts, that’s “acceptable” as long as I can pretend that one day, I’ll be part of the Ruling Class.”

    Long Live the Tea Party!!!Report

    • tom van dyke in reply to Jeff says:

      “let’s dial back a few parts of our contemporary Leviathan: the Americans with Disabilities Act, Title IX, the light bulb ban, endangered species/wetlands protection enforcement, etc. ”

      Who said that? Oh wait, it was The Straw Man!

      He sure gets a lot of replies around here. I agree with him about the light bulbs, though…Report

      • RTod in reply to tom van dyke says:

        “Who said that? Oh wait, it was The Straw Man!”

        Are you sure? I thought he was the one that kept talking about getting a brain.Report

      • Jeff in reply to tom van dyke says:

        “Who said that? Oh wait, it was The Straw Man!”

        It’s a direct quote from the post. See :”For Richer For Poorer, For Better For Worse”, the middle of the first paragraph.

        READING FAIL!Report

        • tom van dyke in reply to Jeff says:

          Guilty, Jeff. I used the Ctrl+F search function, but there was clearly operator error. But I did try, sincerely. I don’t fire indiscriminately.

          I sort of agree with you on the ADA, although it has been taken to heights of ridiculousness.

          Title IX is cool, although I think exceptions should be made for men’s sports that generate revenue, namely basketball & f’ball. But baseball, wrestling, sure, they are of no more import or value to the university than women’s whatever.

          [There might be a libertarian argument to made here, but I doubt there’s much interest, and I’m not inclined to make it.]

          The bugs & bunnies [that’s what environmental lawyers call the trade], I’m 50-50. I like nature well enough, but I like people more than bugs & bunnies, and we need to eat and make a living. If that costs us some bug & bunny species, well, excuse us for living.

          And I swear my can of tuna fish tasted better back when there was a little dolphin mixed in. Now it’s just a tasteless mush.

          That would be my nuanced reply, not grenade toss. I apologize for confusing you with the grenade tossers. There are a few hereabouts.


          • Jeff in reply to tom van dyke says:

            Oh, I’m not above tossing a grenade or two.

            But you still seem to be missing the point. I’m not talking about ranking how federal dollars are ranked, from “absolutely necessary” to “can live quite well without them”. That’ can be an interesting debate, but not one I care to make right now.

            My point is that Koz picked federal programs that affect someone else. How about we cut all federal dollars going to the city or town where he lives? Let’s shut down his post office; stop upkeep on the freeways he drives on, etc. We’ll stop inspecting the planes he flies on, the food he eats, the drugs he takes.

            He might surprise me and say all this is fine with him, but I really doubt it.Report

            • tom van dyke in reply to Jeff says:

              Oh, “Jeff,” I just wanted to cop to yr accurate charge in that specific instance. You were right, Then I gave you the benefit of the doubt in advance about not being a grenade thrower out of good will and good faith.

              The rest is in your hands, not mine. I addressed the specifics of the post in question, but it looks like you’re too busy and popular to engage them.

              Rock on.Report

              • Jeff in reply to tom van dyke says:

                I’m popular? Yay me!!! LOL

                It’s more a combination of busy, sleepy and tired, though. I might try to address more specifics, I think I’ve been pretty clear about what bothered me about the post.Report

    • Koz in reply to Jeff says:

      The point is, that from what I can see, Title IX and the light bulb ban and the rest of it are not nearly as close to the liberal heart as the fundamental building blocks of the welfare state, Medicare and Social Security. They are not as hard to give up, and removing the regulatory burden helps employment.

      Fwiw, I hope that entitlements are not reduced in this deal. I think there’s a decent chance that in the medium-term future we’ll get entitlement reform that works, by which I mean a welfare state that costs significantly less than the current trajectory but is more cost effective for Demo priorities. But to do this, the Demo’s actually have to agree to this in the light of day instead of being intimidated by the debt ceiling issue. (If the GOP executes well, I expect this to happen for reasons I’ll explain if anybody cares.)Report

      • Jeff in reply to Koz says:

        What you call the “welfare state” (thanks again to The Blessed St Ronnie for that term!) I call the social safety net. You may be willing for the poor to be homeless, go hungry, have limited access to the Internet (one of the several reasons why Republicans are happy to close libraries), etc. I’m not. With more and more people unemployed, and for longer and longer, we need to bolster programs that “support the general welfare” not cut them.

        The money going to regulatory enforcement doesn’t stifle small business, it keeps the people running them (and supplying them and working in them and buying from them) safe and secure. The regulations themselves may stifle small businesses (although the examples usually given show why we need regulation instead of why we need top get rid of them — the McDonald’s Coffee Lawsuit comes to mind), but I doubt very many do.

        The best for small businesses is higher employment, especially further down the “food chain”. The more people have, the more they’re likely to spend, and the poor and middle class are much more likely to spend locally than the rich.

        Again, give me an example of federal dollars that help you personally that you’re willing to give up, and I’ll be much more likely to take as anything other than selfish.Report

        • Robert Cheeks in reply to Jeff says:

          Jeff, welcome. Here at the League we follow Rushbo in referring to Him as Renaldo Magnus…just sayin.’Report

        • Koz in reply to Jeff says:

          “You may be willing for ……., etc. I’m not.”

          Well yeah, obviously the loss of political power of liberals is an important condition for the return of prosperity to America but I was making a slightly different point.

          Title IX, the light bulb ban and the rest of it are not, for most liberals (or nonliberals) the fundamental building blocks of the safety net. They can be gotten rid of in the interest of full employment.Report

  9. Alan Scott says:

    I’m sorry, but when did title XI become an economic dead weight that prevented small businesses from bolstering employment?

    The shop down the corner isn’t really impacted either way because publicly funded schools have to provide equal programs for female athletes.Report

    • Koz in reply to Alan Scott says:

      Title IX doesn’t affect anyone but universities but it affects them substantially. And like many other sectors, secondary education is undergoing a severe money crunch. Donors don’t care about women’s sports.

      And like Simon mentioned below, nearly all the money spent on Title IX compliance is deadweight loss.Report

  10. Simon K says:

    Koz – I think this is extremely astute on the politics of the current impasse. I don’t disagree with any of that, and the bit about the Tea Party needing its own Tea Party needs to be more widely heard.

    I have two disagreements about the economics. Firstly, although China has problems coming down the pipe, these problems are unlikely to affect their willingness to buy US debt. Their stockpile of T-bills is a side-effect of the inflationary peg of the yuan against the dollar. As long as they want to keep their price advantage in exports, they need to keep buying more T-bills. If they decide to let the yuan rise to end inflation,which they must do eventually, they will indeed buy fewer T-bills, but it seems they think this would be unacceptable domestically, and I think they’re right – China needs to develop much more sophisticated financial markets and end capital controls before it can let the yuan float.

    Secondly, as you know I don’t agree that government spending as such is particularly a problem for small businesses. I’ve been involved with small businesses most of my life, and the planning horizons are typically so short the prospect of future taxes to pay for current spending is just impossibly distant. Uncertainty inherent in the business is so overwhelming that political uncertainty fades into insignificance. If anything the reverse is true – small businesses need overall aggregate demand to be high and typically benefit, albeit only marginally, from subsidies. Its a very rare entrepreneur who stays out because he thinks taxes will be higher a few years down the road because of the debt to GDP ratio. Indeed, I doubt most of them would even know what that meant, and that’s to their credit

    Lastly, however, I strongly agree about regulation. Contrary to what I think people assume, regulation as such is not that expensive. But its impact can be enormously larger and much worse for efficiency than taxation. Cash taxation may be one of the great liberations of humankind from the state. Okay, that’s an exaggeration but bear with me here – its far more efficient for me to do what I do and pay the state cash which it uses to achieve its ends than it is for the state to force me to do whatever it is it wants. The latter was the normal means by which rulers extracted surplus from the population for most of human history. In comparison, the income tax is a relatively mild imposition. Yes, even with the current US tax code. Regulation imposes large costs on specific entities. Often, ironically, small business providing services we claim to want. Taxation, at least if its remotely fair, spreads costs evenly or in accord with ability to bear them.Report

    • Koz in reply to Simon K says:

      This is a great comment. About China, like anywhere else we don’t have any divine knowledge into the future. But, we do know that China has a severe real estate/infrastructure bubble. These developments were intended to be self-sustaining and it turns out they’re deserted. Therefore, the Chinese government is going to have to prop these up with money or else they won’t be maintained and their shiny new infrastructure/real estate will rot away. This at time where export profit margins are expected to decline. Therefore they may have less money to buy Treasuries.

      As far as fiscal policy and small business goes, you are correct about the owners’ motivations. On the other hand, these businesses need to be financed, internally or otherwise, and the financier’s motivations are quite different. Like on the other thread where we differentiated the housing market from the equity market, the key element of finance these days is liquidity. And any investment in a small business is almost by definition an illiquid investment. And money for small business is very very tight at the moment. Come to think of it, that’s a better explanation for our money problems than the conventional liquidity trap angle.

      Finally, I agree with you about regulation of course. For me, the important context behind my fiscal arguments is this: as a matter of simple accounting, the burden of government upon the hopes and aspirations of the private sector can never be less than the money government spends. Assuming that we have the most fair, efficient, elegant regulatory and taxation scheme possible. That’s the starting point of the time-shifting analysis.

      As you point out, we don’t have the most elegant regulatory/taxation scheme. Therefore we are paying significant deadweight loss on top of the money paid to the government as taxes. In an era of unemployment as a severe social problem we should be working to recover this deadweight loss as much as possible.Report