By Dan Kervick
Brad DeLong worries that President Obama does not have a strategy to persuade Mitch McConnell and Senate Republicans to back down from their “crazy” threat on the debt ceiling and force them to accept a “real deal”:
I don’t see a strategy from Obama to convince Senator Mitch McConnell (R-KY) and the other debt-ceiling hostage-takers that Obama has a path for what happens after the debt ceiling is breached that he prefers to a real defusing deal.
DeLong’s description here is slightly confusing, because the debt ceiling has already been breached. It was breached six days ago, and Treasury Secretary Geithner has already informed Congress that the US Treasury is now taking a series of extraordinary accounting measures to continue making all of the government’s payments without increasing the nation’s total debt obligation. The estimate is that we have a couple of months before the government runs out of the kinds of accounting tricks that will enable the country to avoid defaulting on some its payment obligations without issuing debt above the current statutory limit. So I assume DeLong just misspoke here, and by “breaching the debt ceiling” he actually means “defaulting on payment obligations”.
But note DeLong’s presupposition that Obama has a “real deal” he is prepared to make in exchange for Republican action to “defuse” the debt ceiling. Presumably this deal would involve enacting the sort of debt ceiling overhaul legislation the two sides have mooted over the past year. The debt ceiling would henceforth be automatically extended as needed, but Congress will get to pass some kind of meaningless finger-wagging resolution each time. Obama will presumably deliver Democrats to a package of spending cuts and tax increases in exchange.
Of course, if Obama is negotiating with Republicans on a deal to exchange spending cuts – presumably including entitlement cuts – for a debt ceiling reform, then his commitment last week and this weekend that he would not negotiate over the debt ceiling law is just the usual “I will not negotiate with terrorists” falderal to cover a back-channel negotiation. McConnell certainly believes he is in the middle of a negotiation with Obama over a debt ceiling compromise, and a compromise on the precise shape of further fiscal contraction.
With John Boehner weakened and out of the picture, McConnell and Obama are the two principals now. My guess is the latter two already know exactly where this is going to end up: with conservatives accepting a few more tax increases and liberals giving up the store on entitlements and embracing Obama’s insistent and economically incompetent brand of Shared Painer austerity – all while celebrating a change in the debt ceiling law as a great progressive victory.
Note that Obama and McConnell have already succeeded in steering liberals into a moral panic over the debt ceiling, and in inducing the requisite sense of default hysteria. The liberal discussions over the past several days have all been obsessed with what to do about the debt ceiling – with the more important matter of the upcoming sequestration cuts and the government’s contracting and recession-tempting fiscal position taking a back seat. Obama and McConnell have succeeded in changing the conversation from one over the role of fiscal policy activism in generating economic growth and jobs into a panicky secondary conversation about debt ceilings, defaults, and other apocalyptic nightmares. Many liberals will now probably be happy to trade away entitlement cuts to save the country from the dread jaws of default.
There are various ways of circumventing the debt ceiling, including platinum coin seignorage, 14th amendment legal claims, consols or other exceptional devices. Successfully employing one of these tactics would presumably weaken the Republican bargaining position. But to expect President Obama to make a move of this kind presupposes that he actually wants to diminish Republican leverage. I don’t think he really does want to reduce that leverage. He wants to exploit that leverage to manipulate his own party into accepting the entitlement and other spending cuts he is determined to ram through. Obama and McConnell are going to negotiate this business among themselves, and deliver some combination of Republican-style austerity and Obama-style austerity. They have the country lined up right where they want us.
The fact is that the US actually needs to run larger deficits, and invest heavily in employing our many unemployed people and mobilizing resources to meet our many unmet needs. But both parties in the US appear to have caught the European austerity disease. Wolfgang Münchau writes today in the Financial Times about the US’s new misguided pursuit of austerity:
When viewing the US fiscal stand-off from Europe, it all looks eerily familiar. The US has become very European. But for me the main problem is not an inability to deal with the structural deficit, as the Economist argued in its latest cover story, but rather the contrary. I fear that the US is blindly rushing into semi-automated austerity, which is exactly the mistake we have made in Europe. The problem is not the size of the national debt as such, which is manageable in both cases, but our policies in dealing with it.
Münchau is surely right. But rather than learn from the experience of Europe, Washington is following its example and engineering the same misguided program of prolonged stagnation – and possibly a second recession – that has been foisted on many of our European friends by their misguided or malevolent leaders. Some liberals and progressives in the US continue to write as though a fiscal program for growth is still available, so long as Obama stands tall against the debt ceiling and Republican blackmail. They seem not to have noticed that fiscal expansion is not even on the table. The entire Washington debate has moved to a choice between Republican cuts-only austerity and Obama’s Shared Painer austerity. If a renewed drive for fiscal activism is to take shape, it is not going to come from the White House.
Now I agree that minting a platinum coin to circumvent the debt ceiling can have a variety of beneficial effects, particularly on the public understanding of our antiquated and plutocratic system of public finance. People will begin to wonder why we are issuing so many bonds and delivering totally unnecessary interest profits to surplus capital, when we can simply create the spending balances we need and manage those created balances in ways that achieve our many unmet national needs while avoiding unacceptable levels of inflation. But I think we need to keep our eyes on the ball here: the problem facing the country is the totally inadequate fiscal policy response to massive unemployment and prolonged economic stagnation. The debt ceiling is a side-issue and is being exploited as a political smokescreen by the conservative neoliberal leadership of both parties.
For a sad example of the type of liberal instrument that Obama plays so well, consider this piece today by William Saletan. It concludes with this manifesto of post-election partisan confidence:
I feel bad for McConnell. He’s right that our debt is too high and our entitlement programs are out of control. He’s right that we need to means-test these programs and raise the ages of eligibility. But the debt-ceiling and sequester deadlines won’t force us to make those cuts any more than the fiscal cliff did. Politically, those deadlines are empty threats. Republicans will have to bargain for entitlement cuts, and that will mean swallowing tax hikes. If that wasn’t obvious before McConnell’s interviews, it is now.
Note the classic liberal false bravado masking craven acquiescence in a conservative economic agenda. Saleten has totally bought into the Shared Painer austerity agenda, but imagines he is some kind of tough guy for insisting that the recessionary and anti-progressive fiscal contraction must come from both tax hikes and entitlement cuts. Republicans will have to bargain for their entitlement cuts, for their further castration of the public sector and for another victory in their long war on progressive government.
That’s telling them Will!