Debt Limit Grab Bag

~by Koz

A Debt Limit Deal Is Not Inevitable

We all know the pressures the various actors will be under to find a deal, and we fear the consequences if they don’t. But that’s only one half of the story. There’s also very deep antagonism for and from the Tea Party at the activist level, manifested in the desire for further confrontation. And what’s gone unnoticed so far, is that even if one side or the other were forced to capitulate, there’s nothing to capitulate to. There’s no plausible deal on the table one side or the other could take if they wanted to.

I wrote that paragraph a few days ago, and over the past week things have gotten clarified a bit. Now, there is a framework for a deal. If there is a deal, it probably look like this: First, a $1 – 1.5 trillion in nonentitlement budget cuts and no revenue. Then, some kind of commission or Congressional committee to generate $2 -4 trillion in additional cuts, almost certainly including entitlements, and $0.5 – 2 trillion in increased revenue. The first step is a commitment, the second step is not. From what we’ve seen so far, this ought to be acceptable to both parties. The dealbreaker is the time frame. The debt limit increase will either end before or after the next election. The Republicans want before, the Democrats want after. One side or the other will have to give.

There’s a surreal time warp watching this unfold over the last few weeks. All the moves make sense, but they take place in slow motion. It’s like watching a movie hero rescue the woman tied to the train tracks. As the train gets closer, the slower the hero moves.

The Tea Party Needs A Tea Party

For good or ill the Republican Party has represented the political machinery of the mainstream Right in America for at least fifty years. As they became complacent and corrupt, the Tea Party movement materialized in large part to organize around the priniciples of limited government without being tainted by the corner-cutting and the logrolling of the Republicans.

But, the Tea Party needs a Tea Party of their own, or at least some way to maintain their prinicples of limited government without wallowing in anger. People make bad choices and catch bad breaks in life and as a consequence there’s anger in the world. The problem with the Tea Party is the feral mindless quality of their anger, which is unpleasant and ineffective.

As it applies to the debt ceiling, several prominent Tea Party personalities (and some mainstream Republicans) have claimed the debt ceiling should not be raised at all when everyone is aware that it will or very serious adverse consequences will ensue. Others have wanted to attach conditions to the debt ceiling that make no sense at all. For the record, I hate hate hate the Balanced Budget Amendment in this context. Constitutional amendments are where policy initiatives go to die. We cannot afford to allow budget cuts to die.

Memo to Tea Party: whether it comes from superior intellect or political strength, the other side cannot capitulate to something that doesn’t make any sense. And regarding the debt ceiling, the things you’re talking about don’t make sense.

The Congress We Have

Most Americans tend to have a low opinion of Congress, instutionally and individually in many cases as well. Its approval ratings have approximated single digits in some cases. Therefore many Americans would like to simply ignore what goes on there. And even the political class in many cases wants to short-circuit Congress: witness the Libya war, the Balanced Budget Amendment, and the McConnell plan.

This is a mistake. For good or ill, Congress is the foundation of our Constitutional system and there’s no getting around that. The stupider and more insular Congress is, the more it must be supervised and engaged. And, there’s at least one good thing that can be said in its favor: Congress is the best place in American government for contemporary debate to circulate. The alternatives are much worse.

Frum Scenario

Since David Frum left National Review, he personifies an interesting place in the American Right. Specifically, he represents moderately conservative professionals who are socially alienated from the mainstream Right. The key point to remember about the Frum demographic is that they tend to be motivated by social anxieties as opposed to policy disagreements. Though there are some vague policy disagreements, for the most part it’s an unspoken fear that if they support the Republicans that a bunch of polyester suits from Tulsa will take over. For the most part they just need to get over it. But when they’re right, they’re right. And here, they’re right.

Political Potpurri

No matter how the debt limit issue is resolved, I suspect the Right is going to take a significant hit. The issue has dragged on long enough to force its way into the public consciousness. 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.

They’ll take a hit whether they end up winning the policy battle or not. And let’s not forget this particular policy battle is crucial. But the mistakes that the Tea Party are making are avoidable nonetheless. The Tea Party will survive this but they have to learn the lesson: there’s no substitute for execution.

Politically speaking, there’s at least two winners in the GOP: Mitt Romney and John Boehner, the latter especially. Contrary to the President’s wishes, it’s pretty clear that House Speaker John Boehner is the adult in the room. He can negotiate with the President and the Tea Party Caucus. He wants to increase the debt ceiling to prevent default, but he also wants to decrease expenditures and put America on a stable fiscal path. And that’s where the country is right now.

Manufactured Crisis

Some, mostly but not exclusively on the left, have complained that the whole thing is a Chinese fire drill. For these people, some say the debt limit is an anachronism, others go further and say that the US debt problem is oversold. Unfortunately for us, this is not the case.

As some readers are aware, both Moody’s and Standard and Poor made negative comments about US Treasuries, in particular explaining some circumstances where they might be downgraded. If push comes to shove, the rating agencies can be rationalized away for previous incompetence.
But it takes two to tango in borrowing. Whether the borrower is creditworthy or not, there needs to be a lender willing to lend. China has grown at the rate near 10% for several years now, but this is not expected to last. And as growth slows in China they will have to confront a demographic crisis, a real estate bubble and other very serious issues. They will want to allocate their savings elsewhere and will not want to loan to America. Now, China is not the only lender there is, but for the amount of money we need, there aren’t too many alternatives.

For Richer For Poorer, For Better For Worse

Some have argued that the various levels of government need to spend money for the sake of temporarily increasing employment until the economy recovers from the recession. Of course, employment is driven by small business and small business is hurt by excess government spending rather than helped by it. If we’re going to do anything for employment, 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. These things (and there are more where they came from) cost the government money but more importantly create an economic dead weight cost overhang the the private sector must push through. In marginal cases it’s not worth it to try.

In the bigger picture, those of us outside of government have to adjust our expectations. We may wish that major universities have roughly the same number of female varsity athletes as male ones. But we can live without it. The real issue isn’t when we’re going to return to the economy of 1983-2008 but whether. We shouldn’t expect that this is just a short blip we’ll get through soon. The opportunity for that was two years ago. If it happens that’s great. But we need to make policy for better and for worse. And now that means fiscal responsibility.