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Tag Archives: Debt Ceiling

Understanding the Coming Arguments About the Federal Budget

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Paul Krugman’s new column sets the scene for this year’s dispute regarding the federal budget. It will be in the news a lot so it’s good to know what’s going on:

[Today], the White House released its budget [proposal]; Republicans haven’t offered a specific counterproposal, but they seem to be coalescing around a plan released by Russell Vought, [the former president’s] last budget director. Neither plan will become law. Instead, they’re intended to position the two sides for the looming confrontation over the federal debt ceiling.

But let’s not engage in false equivalence. The Biden budget may be political theater, but its numbers make sense. The Republican numbers don’t.

In some ways we’ve been here before. A decade ago President Barack Obama also confronted a Republican-controlled House, which sought to use blackmail over the debt ceiling to extract policy changes it couldn’t have enacted through the normal budget process. And Vought’s plan bears a strong family resemblance to the plan advanced back then by Paul Ryan, who would become speaker of the House in 2015.

But the political and intellectual environment is different this time. In 2013 Washington was full of Very Serious People who were obsessed with the budget deficit and believed Republicans who claimed to be deficit hawks. Ryan, in particular, was the subject of much media swooning, although anyone who looked at the details of his proposal realized that it was flimflam.

These days the deficit scolds are much less influential than they were. The news media is, by and large, treating Republican claims that they have a plan to balance the budget with the ridicule they deserve. And the parties themselves have changed: Democrats have become more unapologetically progressive, while the [Republicans seem] far less interested in fiscal policy, or policy in general, than in the past.

So, about President Biden’s budget: The starting point for this budget is that Biden’s people evidently view deficits as a source of concern, but not a crisis. Overall, Biden’s budget proposes increasing social benefits on a number of fronts even in the face of rising debt. It nonetheless proposes to reduce the budget deficit, but only modestly — it claims to shrink the deficit over the next decade by almost $3 trillion, but that’s less than 1 percent of G.D.P.

How can Biden reduce deficits while expanding social programs? Mainly by raising taxes on corporations and wealthy individuals, with an assist from cost-cutting measures in health care, especially using Medicare’s bargaining power to reduce spending on prescription drugs.

Are Biden’s numbers plausible? Yes. Notably, the economic projections underlying the budget are reasonable, not very different from those of the Congressional Budget Office. The projections even assume a substantial but temporary rise in unemployment over the next year or so [as the Federal Reserve raises interest rates].

Now, even economists like yours truly, who have been fairly relaxed about budget deficits, generally believe that at some point we’ll have to do more than this. We’ll need a much broader effort to bring down health care costs, and we’re also going to need more revenue than you can raise solely by taxing Americans with very high incomes. But Biden’s plan is a step in the right direction.

What about the Republicans? They claim to believe that rising federal debt is a major crisis. But if they really believed that, they’d be willing to accept at least some pain — accept some policies they dislike, take on popular spending programs — in the name of deficit reduction. They aren’t. The Vought proposal calls for preserving the [Orange Menace’s] 2017 tax cuts in full, while also avoiding any politically risky cuts in defense, Social Security or Medicare.

Yet it also claims to balance the budget, which is basically impossible under these constraints. In fact, even with savage cuts to Medicaid and drastically reduced funding for the basic functions of government, Vought is able to claim an eventually balanced budget only by promising that tax cuts and deregulation will cause a big rise in the economy’s growth rate. Tax cutters often make such claims; they never, and I mean never, deliver on their promises.

What I find a bit puzzling is why Republicans are still rallying around this stuff. The modern Republican Party gets its energy from culture war and racial hostility, not faith in the miraculous power of tax cuts and small government. So why not give up on the ghost of Reaganomics? Why not come out for a strong social safety net, but only for straight white people?

Part of the answer may be that the party still needs money from billionaires who want to keep their taxes low. But it also seems to me that the peddlers of right-wing economics have done an extremely good job of marketing their wares to politicians who don’t know or care much about policy substance. That Vought proposal, as I said, looks a lot like Paul Ryan’s plans a decade ago — but it’s titled “A Commitment to End Woke and Weaponized Government,” and somehow manages to mention critical race theory [CRT] — which is not exactly a line item in the budget — not once, not twice, but 16 times.

In any case, where we are now is that Biden is offering a basically reasonable fiscal plan, while Republicans are talking meanspirited nonsense.

A few weeks ago, Krugman was interviewed and offered his opinion about the debt ceiling. He said he knows of at least six different strategies that would allow the government to keep paying its bills and avoid a financial crisis even if Republicans refuse to raise the debt ceiling:

I think a lot of us are operating under the working assumption that the Biden people will deny up till the last minute that they’ll do any of the funny strategies. But then if push actually does come to shove they will. And they’ll mint the trillion dollar coin or they’ll invoke the [14th Amendment to] the constitution. [These] different, exotic strategies … all have zero economic significance. They’re all about just exploiting the fine print in the law to avoid [a crisis].

… America does many things well and many things badly. But one thing we do have is smart lawyers…. I assume that there is an ultra-secret team of lawyers maybe working under Cheyenne Mountain preparing debt strategies.

Something Very Smart About the Stupid Debt Ceiling

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Is it mere coincidence that one of the most sensible newspaper columnists working today, Paul Waldman of The Washington Post, almost always expresses opinions I agree with? No, I think not!

Anyway, his column today is so sensible it should be memorized by everybody in Congress and the Biden administration. It deals with the debt ceiling, the idiotic requirement that Congress has to have a new vote whenever the federal government needs to borrow more money to pay for things Congress previously decided to do.

Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents [US Treasury].

Congress raised the debt limit three times the last time we had a Republican president (you remember him, the orange one). Now that we have a Democratic president, Republicans are threatening to vote against raising it. That would mean the US government would be unable to make payments it’s legally required to do — for the first time in American history. Nobody knows what would happen then. Almost everybody with a brain thinks it would be a crisis, possibly a disaster, and certainly not something it would be cool to try (unless maybe you think the 2008 financial crisis was worth repeating).

Okay, back to the insightful Paul Waldman:

Even as they try to force a debt ceiling crisis, Republicans insist that they’re the reasonable ones. They just want a fair resolution to this disagreement about whether we should create a needless economic cataclysm by throwing the U.S. government into default. Why won’t the White House negotiate with them?

The White House has flatly rejected the suggestion, saying it simply will not negotiate over whether to default on America’s debts, no ifs, ands or buts. But here’s another idea: If we’re going to have negotiations, let’s make them real. Instead of countering Republicans’ anti-government agenda with a demand to maintain the status quo, Democrats ought to up the ante and insist on their own pro-government agenda.

If you knew nothing about this subject, it might sound like the president is being recalcitrant and Republicans are being sensible. “Let’s sit down together,” says House Speaker Kevin McCarthy (R-Calif.). “Nobody should be taking the position that we should not negotiate,” says Rep. Brian Fitzpatrick (R-Pa.). Even Sen. Joe Manchin III (D-W.Va.) says Democrats “have to negotiate.”

But we’re thinking about “negotiations” all wrong.

The problem begins with the current stance of the two parties. The White House’s position is essentially to maintain the status quo: Congress has appropriated the funds already, and those bills should be paid, which means borrowing the money to cover them. We can argue about how much of the cumulative debt is the responsibility of each party (they’ve both contributed) or how hypocritical Republicans are for pretending to care about debt only when there’s a Democrat in the White House (very). But the administration insists there must be a debt limit increase with no change to current policy.

Republicans, on the other hand, are fantasizing about all the savage cuts they’d like to make to domestic spending, up to and including slashing Social Security and Medicare. So if a negotiation produces a compromise, it would mean more spending cuts than Democrats want but fewer than Republicans seek. Which would still be a victory for the [bad guys].

Instead, Democrats are perfectly free to say the following: With their demand for across-the-board domestic spending reductions, Republicans are in effect proposing cuts to education, health care, economic development, clean energy, infrastructure, enforcement of environmental laws and a great deal more. So here are some of our demands:

  • A significant tax increase on the wealthy
  • An increase in the minimum wage, including indexing it to inflation
  • A national paid family leave program
  • A program to extend the Affordable Care Act’s expansion of Medicaid to the states that have refused to accept it
  • Universal pre-K
  • A permanent expansion of the child tax credit

That could be just the start. Republicans want to negotiate? Then let’s negotiate! Democrats will be willing to take half a loaf on some of these items; for instance, they might be able to accept only a modest tax increase for the wealthy, or an increase of the minimum wage to only $11 an hour rather than $15. That seems reasonable, doesn’t it?

Think about it this way and it’s clear how odd it is that we’re even calling the GOP demand a negotiation. The choices are (1) give Republicans all of what they want, or (2) give Republicans only some of what they want, with the hope that if the outcome is No. 2, then they’ll be kind enough not to shove the U.S. economy off a cliff.

To be clear, the White House is right that there shouldn’t be any negotiations at all. You don’t negotiate with extortionists, and what Republicans are threatening is economic extortion. It shouldn’t be rewarded.

In fact, the White House ought to go further: The president should announce that in the White House’s view, the debt ceiling violates the 14th Amendment, and because it would be unconstitutional for the United States not to make good on its debts, the Treasury Department will ignore it and continue to pay the government’s bills. If Republicans want to file suit and demand that the Supreme Court allow them to destroy the country’s economy, they’re free to try.

But refraining from destroying the economy shouldn’t be considered a favor Republicans do for Democrats, such that the Democrats have to respond by granting Republicans concessions in return. If they want to have a real negotiation in which both sides get some of what they want, then fine.

That’s the only thing that should be treated as an actual negotiation. Otherwise, Biden should simply take care of the problem in the most expeditious way possible.

Two Pieces of Good News from Washington

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Speaker of the House John Boehner allowed a straightforward “clean vote” on raising the debt ceiling instead of holding the world economy hostage again. Many right-wingers are outraged. Maybe one day Congress will get rid of the debt ceiling altogether, since raising it merely allows the government to borrow money to pay bills Congress has already approved.

Secondly, Janet Yellen testified before Congress for the first time in her new role as chairman of the Federal Reserve. It’s hard to understand why President Obama initially seems to have preferred someone else for the job. There is a nice, clear summary of her testimony from John Cassidy at the New Yorker. This is his conclusion (calling her “dovish” means she’s not an “inflation hawk”, i.e. fighting inflation isn’t her one big priority):

She’s a historic figure. I am not just referring to her gender. I’m talking about her approach to policy making, and the emphasis she puts on creating jobs and reducing unemployment. “Since the financial crisis and the depths of the recession, substantial progress has been made in restoring the economy to health and in strengthening the financial system,” she said toward the end of her prepared remarks. “Still, there is more to do. Too many Americans remain unemployed, inflation remains below our longer-run objective, and the work of making the financial system more robust has not yet been completed.”

It’s been a long time since we’ve had a Fed chief come to office declaring that unemployment is too high, inflation is too low, and that we need to keep those Wall Street bounders in check. (Bernanke ended up saying some of these things, but he didn’t start out saying them.) In a post last year, I suggested that Yellen could be the most dovish Fed boss since … the Great Depression, and I noted that, “if Yellen does take over from Bernanke next February, there’s no reason to doubt that concern for the unemployed will remain her leitmotif.” Nothing she said today was inconsistent with that description.

Take This Job and Keep It!

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It appears that Congressional leaders and the President are nearing an agreement to end the government shutdown and raise the debt ceiling. Rational people will applaud this development, even if the agreement merely buys some time until our next crisis.  

Then there are people like Rep. Tim Huelskamp, Republican of Kansas. He is reported to have said: “Anybody who would vote for that in the House as a Republican would virtually guarantee a primary challenger.”

Let’s see. Vote to end the shutdown and raise the debt ceiling, thereby putting thousands of people back to work and avoiding a possible financial meltdown and worldwide recession, or have competition in next year’s primary election. That’s a tough choice, all right.

Rep. Heulskamp was first elected to Congress in 2010. Nobody ran against him in 2012, not in the primary and not in the general election. He has a well-paying government job for life and nobody’s going to take it away, whatever happens to the rest of us.

But he isn’t a key player here. He’s one of the Tea Party radicals who is sure to vote against any reasonable agreement. It’s the Speaker of the House and the so-called “moderate” Republicans who have to decide whether to protect the general welfare, even if it means risking their jobs.

http://www.nytimes.com/2013/10/15/us/politics/seeking-deal-to-avert-default-lawmakers-to-meet-obama.html

Selected Reading On The Mess We’re In

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Historian Sean Wilentz makes a forceful argument in favor of Obama invoking the 14th Amendment to protect the world’s economy:

… the president would have done his constitutional duty, saved the country and undoubtedly earned the gratitude of a relieved people. Then the people would find the opportunity to punish those who vandalized the Constitution and brought the country to the brink of ruin.

http://www.nytimes.com/2013/10/08/opinion/obamas-options.html?pagewanted=2&hp

The New York Times editorial board is justifiably outraged that many people living in Republican-run states will still lack health insurance next year — they’ll earn too little to be covered by the Affordable Care Act and too much to be covered by Medicaid:

Their plight is a result of the Supreme Court’s decision last year that struck down the reform law’s mandatory expansion of Medicaid and made expansion optional. Every state in the Deep South except Arkansas has rejected expansion, as have Republican-led states elsewhere, [although] there is no provision in the ACA to provide health insurance subsidies for anyone below the poverty line … those people are supposed to be covered by Medicaid… Eight million Americans who are impoverished and uninsured will be ineligible for help of either kind.

http://www.nytimes.com/2013/10/04/opinion/a-population-betrayed.html?ref=opinion

Of course, Congress could easily fix this problem, but that would require You Know Who to cooperate.

At Jacobin, Shawn Gude writes about the fundamental tension between capitalism and democracy, in the context of living-wage legislation in the District of Columbia:

The controversy throws into sharp relief one of our era’s great unspoken truths: Capitalist democracy, if not an oxymoron, is less a placid pairing than an acrimonious amalgamation. The marriage that Francis Fukuyama famously pronounced eternal is in fact a union of opposites. Inherent to capitalism is inequality, fundamental to democracy is equality. Class stratification, the lifeblood of capitalism, leaves democracy comatose. The economic “base,” to put it in classical Marxian terms, actively undermines the purported values of the political superstructure.

http://jacobinmag.com/2013/08/capitalism-vs-democracy/

And finally, Nobel Prize-winning economist Joseph Stiglitz argues that we can undo the decisions that got us into this mess:

We have become the advanced country with the highest level of inequality, with the greatest divide between the rich and the poor… The central message of my book, The Price of Inequality, is that all of us, rich and poor, are footing the bill for this yawning gap. And that this inequality is not inevitable. It is not … like the weather, something that just happens to us. It is not the result of the laws of nature or the laws of economics. Rather, it is something that we create, by our policies, by what we do.  

We created this inequality—chose it, really—with laws that weakened unions, that eroded our minimum wage to the lowest level, in real terms, since the 1950s, with laws that allowed CEO’s to take a bigger slice of the corporate pie, bankruptcy laws that put Wall Street’s toxic innovations ahead of workers. We made it nearly impossible for student debt to be forgiven. We underinvested in education. We taxed gamblers in the stock market at lower rates than workers, and encouraged investment overseas rather than at home.

http://www.alternet.org/economy/joe-stiglitz-people-who-break-rules-have-raked-huge-profits-and-wealth-and-its-sickening-our

Meanwhile, the Swiss are voting on whether to guarantee everybody a minimum monthly income of $2500 francs ($2800 dollars). They’re also voting on a proposal to limit executive pay to no more than 12 times what the company’s lowest-paid workers earn. Who knew that the businesslike, orderly Swiss were a bunch of commies? Or maybe they’re just fed up with rising inequality, even in Switzerland.

http://www.reuters.com/article/2013/10/04/us-swiss-pay-idUSBRE9930O620131004

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