I cannot say I am very pleased with the latest proposal to come out of the House. They would extend the debt ceiling until November 22, while banning "extraordinary measures" by the Treasury Department to keep things going beyond that date. The government would stay closed while the sides negotiate a budget. And President Obama has said he will "likely sign" such a measure. Republicans have apparently figured out that the shutdown and the debt ceiling are becoming identified in the public mind (something I was counting on) and want to separate them.
So, Republicans will grant their more valuable hostage a reprieve until November 22 and then definitely shoot it, and they will hold onto their less valuable but more visible hostage. In the meantime, budget negotiations will take place. Republicans have already let it be known that any budget based on the numbers they have supported all these months would be an intolerable capitulation, and only massive cuts will persuade them to reopen the government and again extend the debt ceiling. Oh, yes, and the Tea Party faction will settle for nothing less than ending borrowing altogether, i.e., an immediate balanced budget.
Okay, trying to salvage anything even minimally encouraging from all this, it probably means that the Republican leadership is aware of how dangerous a debt ceiling breach will be and is not willing to risk it. If they will grant the hostage this one reprieve, they will probably find a way to grant another. Or maybe the Crazy Caucus will find the humiliation so painful that only an actual breach will remedy it.
The real, underlying problem here is that the Tea Party caucus wants something that is not achievable. Many of them will settle for nothing less than an immediate balanced budget. Given that about a third of budget* is covered by lending, and given that Republicans are united in their belief that taxes are intolerably high and must never be raised no matter what., that means cutting federal spending by about a third, immediately. Tea Partiers have convinced themselves either that these cuts will be painless or (more probably) that any pain resulting from such cuts will be much less than the looming crash that will strike if we continue to borrow. They consider a debt ceiling breach a perfectly reasonable way to stop the borrowing once and for all.
Of course, there is another, perfectly normal and acceptable way within our system of government to stop the lending. That is to submit an actual balanced budget. That will do it; the lending will stop. But, of course, the Republicans, even the Tea Party, don't actually know how to do that. Any budget that cut federal spending by a third (or even 20%) overnight would be politically unpalatable. It would be greeted by outrage among the general public, and even much of the Republican base. It would not pass the Senate. It would not be signed by the President. It probably would not pass the House. Hell, I don't even know if would be acceptable to much of the Tea Party. Any serious attempt to balance the budget is going to take time, patience, and planning. As Megan McArdle says, you can privatize air traffic control, but you cannot privatize them by the end of the month. You can convert Social Security into a system of private accounts, but you cannot retroactively have made everyone save the requisite amount. And even if the Tea Party believes that borrowing is so dangerous that there simply is not enough time for an orderly reduction in spending, it certainly is not so urgent that it cannot wait a few months for the House to come up with a balanced budget.
I can only take the Tea Party's enthusiasm for a debt ceiling breach as an implied acknowledgement that they don't know how to balance the budget overnight and are punting it to the executive. Yes, that's right, after denouncing Obama as an out-of-control executive and an elective dictator, they now want him to decide which spending gets cut so they don't have to. A more honest strategy is the one that others seem to like -- shutting down the discretionary portions of the government and then deciding which parts they like so they can reopen them. But all in all, it reminds me of an old joke about the female college student who approached her professor about a looming term paper. "Please," she said, "I'll do anything for an 'A' on my paper." "Anything?" "Yes, anything." "Good, then. Write an 'A' paper." The Tea Party will do anything for a balanced budget. Anything? Yes, anything. Good, then. Write a balanced budget. Anything but that!
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*Actually, I have heard figures as low as 20%, but even that would be intolerably painful to cut overnight.
Thursday, October 10, 2013
Eight Days (Maybe) and Counting
Okay, now we have eight days to the debt ceiling breach (or maybe more). I see nothing encouraging out there. The only supposedly good news is that Obama has said he will agree to a short-term increase in the debt ceiling, followed by negotiations. Great! So we get a few weeks respite (a month or two if we are lucky) and the whole thing starts all over. If Democrats were so foolish as to think there would be any relaxation of the sequester, they are being proven wrong. Republicans current position is that sequester-level spending is intolerably high and the only negotiation they will allow is on how much further to cut. And that is the good news!
This is what really scares me. Republicans, or at least a significant faction thereof, say they don't care what political harm they take or what harm it inflicts on the world economy. Breaching the debt limit will be well worth doing if it ends deficit spending and heads off an even greater crisis that is presumed to loom ahead. If they do raise the debt ceiling it will only be in exchange for -- well, it is not clear what, but truly massive spending cuts. Now, granted, I think their resolve may be weaker than they think. We do not, in fact, know when the breach will take place, but when it does, bills will start going unpaid, and the people who do not get paid will start to howl. I think this will have the effect of getting the debt ceiling raised in a big hurry, and (probably) discouraging Republicans from threatening any more defaults for at least the time being. But the harm to the country could be considerable.
So, the choices appear to be traumatic debt ceiling breach that temporarily scares some sense into Republicans, or short-term extension with this drama playing out over and over every few months. Pick your poison.
This is what really scares me. Republicans, or at least a significant faction thereof, say they don't care what political harm they take or what harm it inflicts on the world economy. Breaching the debt limit will be well worth doing if it ends deficit spending and heads off an even greater crisis that is presumed to loom ahead. If they do raise the debt ceiling it will only be in exchange for -- well, it is not clear what, but truly massive spending cuts. Now, granted, I think their resolve may be weaker than they think. We do not, in fact, know when the breach will take place, but when it does, bills will start going unpaid, and the people who do not get paid will start to howl. I think this will have the effect of getting the debt ceiling raised in a big hurry, and (probably) discouraging Republicans from threatening any more defaults for at least the time being. But the harm to the country could be considerable.
So, the choices appear to be traumatic debt ceiling breach that temporarily scares some sense into Republicans, or short-term extension with this drama playing out over and over every few months. Pick your poison.
Tuesday, October 8, 2013
Nine Days and Counting (?)
Well, now I have seen an estimate of how the government shutdown affects the debt ceiling. Goldman-Sachs estimated on September 29 that a few days' shutdown would not make any material difference and "even" a week would not extend the deadline long -- perhaps until October 31. On October 31, many bills (Social Security, for instance) come due and would almost certainly lead to a breach. Apparently Goldman-Sachs did not take into account a shutdown lasting more than a week. Wonkblog says that even if we reached that point, the Treasury Department could probably prioritize bond holder, but only at the cost of shutting down everything else.
First of all, let me second what Kevin Drum says. If an extended shutdown extends the default date, it would be a mistake for the Treasury to insist that the world will end on October 17 and then, when October 17 rolls around, say we have a reprieve. That will just encourage the belief that a debt ceiling breach is not that big a deal. I also do not recommend talking about the most dire and catastrophic possible events if a breach roils the financial system. Such things will seem remote and unreal to most people. It is better to emphasize the more concrete and tangible results of a breach, as I so like quoting from Megan McArdle. Explain the whole slew of bills you have coming due October 31. Be concrete and specific and focus on popular stuff like Social Security payments, or payments due to contractors. Explain that up till now, a lot of the government has been on autopilot, and has kept flying because the pilot has been reporting for duty without pay. Point out the obvious -- that government workers will stay on the job a few weeks without pay, but not forever. And explain that what we are facing now is something different -- the autopilot will be running out of fuel. Unless Congress releases the funds we will only be able to cover two-thirds of our bills. That means that all those bills coming due October 31 -- and again remind people what those bills are -- will either be late or short by a third, or a third of them will go unpaid. That, I think, will scare ordinary people a whole lot more than the prospect of a financial crisis, and will much more effectively ramp up the pressure to do something.
I think someone also ought to point out that Republicans, by threatening to force an overnight spending cut by 1/3, are shirking their own long and hard duty of actually coming up with spending cuts. Once again, McArdle points out why good, well-controlled spending cuts take a lot of time and effort. Speaking to the debt ceiling crisis in the summer of 2011, she said:
The most discouraging thing, though, is that this is starting to look as though it has gone well beyond a policy dispute. It is now politicians' egos on the line. God help us all!
First of all, let me second what Kevin Drum says. If an extended shutdown extends the default date, it would be a mistake for the Treasury to insist that the world will end on October 17 and then, when October 17 rolls around, say we have a reprieve. That will just encourage the belief that a debt ceiling breach is not that big a deal. I also do not recommend talking about the most dire and catastrophic possible events if a breach roils the financial system. Such things will seem remote and unreal to most people. It is better to emphasize the more concrete and tangible results of a breach, as I so like quoting from Megan McArdle. Explain the whole slew of bills you have coming due October 31. Be concrete and specific and focus on popular stuff like Social Security payments, or payments due to contractors. Explain that up till now, a lot of the government has been on autopilot, and has kept flying because the pilot has been reporting for duty without pay. Point out the obvious -- that government workers will stay on the job a few weeks without pay, but not forever. And explain that what we are facing now is something different -- the autopilot will be running out of fuel. Unless Congress releases the funds we will only be able to cover two-thirds of our bills. That means that all those bills coming due October 31 -- and again remind people what those bills are -- will either be late or short by a third, or a third of them will go unpaid. That, I think, will scare ordinary people a whole lot more than the prospect of a financial crisis, and will much more effectively ramp up the pressure to do something.
I think someone also ought to point out that Republicans, by threatening to force an overnight spending cut by 1/3, are shirking their own long and hard duty of actually coming up with spending cuts. Once again, McArdle points out why good, well-controlled spending cuts take a lot of time and effort. Speaking to the debt ceiling crisis in the summer of 2011, she said:
It would, for example, be eminently possible to have a private air-traffic control system. But we cannot privatize the system by August 3rd. Similarly, I think we could use a Singapore or Chilean style private accounts system to save for retirement, but we cannot arrange for today's Baby Boomers to have started saving in 1972--at least not without some fairly massive government spending on time-travel research.I also think someone ought to point out what Republicans are saying when they argue that we don't have to worry about a default because there is plenty of money to pay bondholders. Has anyone pointed out if we prioritize bond holders, who else will get stiffed? Republicans may be okay with this, but I think most Americans will not. Furthermore, I also believe that if the Obama Administration actually does prioritize bond holders in a debt ceiling breach, Republicans will be the first to freak out and accuse him of privileging Wall Street over Main Street, despite having spent the last several weeks urging him to do just that.
The most discouraging thing, though, is that this is starting to look as though it has gone well beyond a policy dispute. It is now politicians' egos on the line. God help us all!
Monday, October 7, 2013
Just to Show You Can Still Find Humor
And just to show you can still find humor in the current madness, I present the following:
Ten Days and Counting
Ten days to go before we breach the debt ceiling, and not has changed. Well, one thing has changed. My mood is becoming more anxious and wondering what if this really does not resolve. It is starting to distract me from work. But then again, I don't expect much of anything to happen this week, besides preening and posturing, so I really shouldn't be getting to anxious yet. If Republicans are going to cave, it should happen about the beginning of next week, with a default breathing down their neck. So, optimistic scenario is preening and posturing till about Friday, secret, frantic negotiations over the weekend for a token, symbolic concession by Democrats that will give nothing of substance but allow Republicans to save a modicum of face. Then, almost clean combined CR and debt ceiling passes at the beginning of the week, Ted Cruz delays it as long as he can, and it narrowly passes the Senate to maximum speed signing. Of course, a lot of things could go wrong. Neither party might budge. Ted Cruz might delay things long enough to force a breach. The bill could take too long to inscribe and delay signing. Anything. But basically, I will fight to urge to panic this week. If nothing is passed by Monday, it is time to give in to it.
In bad news, Senate Republicans are refusing to pass a bill unanimously passed by the House to give back pay to furloughed federal workers. In further bad news, one of the most moderate House Republicans is backing off his support for a clean continuing resolution. In what could be good news over the long run, but is too late to be much use now, the Chamber of Commerce is pledging to donate funds to defend sane Republicans against primary challenges. They may even mount primary challenges against the truly insane. Although I am not overjoyed at the thought of the Republican Party as wholly owned subsidiary of the Chamber of Commerce, I prefer it to a Republican Party that has completely lost its mind. Unfortunately, it looks to be a day late and a dollar short.
In short, hold tight. This will be a rough week.
In bad news, Senate Republicans are refusing to pass a bill unanimously passed by the House to give back pay to furloughed federal workers. In further bad news, one of the most moderate House Republicans is backing off his support for a clean continuing resolution. In what could be good news over the long run, but is too late to be much use now, the Chamber of Commerce is pledging to donate funds to defend sane Republicans against primary challenges. They may even mount primary challenges against the truly insane. Although I am not overjoyed at the thought of the Republican Party as wholly owned subsidiary of the Chamber of Commerce, I prefer it to a Republican Party that has completely lost its mind. Unfortunately, it looks to be a day late and a dollar short.
In short, hold tight. This will be a rough week.
Saturday, October 5, 2013
What Democrats are up to
Okay, I think I now understand why Democrats are wanting a continuing resolution to fund the government at current levels to last a shorter, rather than longer, time. Democrats are unhappy with current levels of funding and hope to negotiate an increase with Republicans.
Bwah ha ha ha ha! Or, as we say on the internet, ROTFLMAO! If the Democrats think that, they are nuts! Let me explain some basics. Republicans think current levels of spending are intolerable and must be massively cut. It logically follows that they will not agree to an increase. Besides, each defeat simply makes Republicans even crazier. Assuming they eventually cave on this go-round, the Tea Party wing will simply decide that they were not crazy enough, and the moderates will fall in line, fearing a primary challenge.
On the other hand, Republicans have said that they might consider increasing discretionary spending in exchange for cuts in mandatory spending or, as it is euphemistically called, entitlement reform. I am not clear whether Republicans simply mean cutting safety net programs for the poor, or whether they mean Social Security and Medicare. (I guess we will find out). If they mean cutting safety net spending on the poor, Democrats will refuse and public opinion may very well back the Republicans. Democrats would be out of their minds to want to go there.
If the Republicans mean Social Security and Medicare, on the other hand, Democrats might want to go there, for entirely cynical and selfish reasons. We do, in fact, have a serious long-run problem with both problems. As our population ages, relatively more and more people will be using these programs, and funding will increasingly be a problem. It is, indeed, better to deal with them sooner rather than later. Republican want to deal with them through spending cuts only. Democrats want to deal with them primarily with tax increases, though perhaps with some modest and cautious spending cuts. In a sane body politic, the parties could reach some sort of compromise, then hold hands and jump together. Unfortunately, we do not live in a sane body politic. Republicans demand that any changes be made by spending cuts only and will not tolerate any increase in tax revenue again, ever. Sure it's crazy, but so is the Republican Party. Every attempt to negotiate the issue has gone exactly nowhere for this reason. Any future attempt to negotiate entitlement reform in the ordinary political process will fail for the same reason. That is why Republicans use extreme tactics like government shutdown and threat of debt ceiling breach to get their way.
Republicans have one little problem here. Their basic position is extremely unpopular, not just with the Democrats, but with the public at large, including much of the Republican base. They are right that eventually something will have to be done. They are also right that ultimately, it will have to be something both parties agree to so that the voters will not be able to punish either party by voting for the other. But so long as they refuse to make any concessions to the Democrats, it ain't gonna happen. Which means that Democrats can portray themselves as champions of Medicare and Social Security against Republican attack. And, although conventional wisdom has it that it is just about impossible for Democrats to win the House in 2014, if anything could make that possible, it is Republicans openly coming out as a threat to Social Security and/or Medicare.
To the extent Democrats are trying to smoke out Republicans as threats to those two programs, their position makes at least some sense. But I still think we do best to postpone the next budget showdown and possible shutdown for as long as possible.
Bwah ha ha ha ha! Or, as we say on the internet, ROTFLMAO! If the Democrats think that, they are nuts! Let me explain some basics. Republicans think current levels of spending are intolerable and must be massively cut. It logically follows that they will not agree to an increase. Besides, each defeat simply makes Republicans even crazier. Assuming they eventually cave on this go-round, the Tea Party wing will simply decide that they were not crazy enough, and the moderates will fall in line, fearing a primary challenge.
On the other hand, Republicans have said that they might consider increasing discretionary spending in exchange for cuts in mandatory spending or, as it is euphemistically called, entitlement reform. I am not clear whether Republicans simply mean cutting safety net programs for the poor, or whether they mean Social Security and Medicare. (I guess we will find out). If they mean cutting safety net spending on the poor, Democrats will refuse and public opinion may very well back the Republicans. Democrats would be out of their minds to want to go there.
If the Republicans mean Social Security and Medicare, on the other hand, Democrats might want to go there, for entirely cynical and selfish reasons. We do, in fact, have a serious long-run problem with both problems. As our population ages, relatively more and more people will be using these programs, and funding will increasingly be a problem. It is, indeed, better to deal with them sooner rather than later. Republican want to deal with them through spending cuts only. Democrats want to deal with them primarily with tax increases, though perhaps with some modest and cautious spending cuts. In a sane body politic, the parties could reach some sort of compromise, then hold hands and jump together. Unfortunately, we do not live in a sane body politic. Republicans demand that any changes be made by spending cuts only and will not tolerate any increase in tax revenue again, ever. Sure it's crazy, but so is the Republican Party. Every attempt to negotiate the issue has gone exactly nowhere for this reason. Any future attempt to negotiate entitlement reform in the ordinary political process will fail for the same reason. That is why Republicans use extreme tactics like government shutdown and threat of debt ceiling breach to get their way.
Republicans have one little problem here. Their basic position is extremely unpopular, not just with the Democrats, but with the public at large, including much of the Republican base. They are right that eventually something will have to be done. They are also right that ultimately, it will have to be something both parties agree to so that the voters will not be able to punish either party by voting for the other. But so long as they refuse to make any concessions to the Democrats, it ain't gonna happen. Which means that Democrats can portray themselves as champions of Medicare and Social Security against Republican attack. And, although conventional wisdom has it that it is just about impossible for Democrats to win the House in 2014, if anything could make that possible, it is Republicans openly coming out as a threat to Social Security and/or Medicare.
To the extent Democrats are trying to smoke out Republicans as threats to those two programs, their position makes at least some sense. But I still think we do best to postpone the next budget showdown and possible shutdown for as long as possible.
Two Mildly Encouraging Developments
Well, I see two mildly encouraging reports from the shutdown/debt ceiling standoff. First, the House has unanimously passed a bill ensuring the furloughed government workers will get back pay whenever the government reopens. This means that even the House Republicans have rejected the extreme option of reopening the government in bits and pieces to see how much of it we really need.
More importantly, though, I really hope that this report is true. It says, in effect, that Republicans know they have lost and that they are simply trying to prolong the shutdown until they have enough cover to add a debt ceiling increase to the bill that reopens the government. Or, as the article says:
The story adds that Boehner does not fear losing his Speakership -- who else would want such a thankless job -- but does fear that passing a continuing resolution too soon would ruin his chances of getting by a debt ceiling increase.
So, if this story is correct, the advice to Congressional Democrats is hold firm and make no concessions until the Republicans are finally ready to crack on the debt ceiling as well. Then be willing to give some small, symbolic concession to allow Republicans to save face. The advice to Obama is to get the &^%$$#@! exchanges working so people can actually buy insurance and make the healthcare law irreversible.
My greatest fear is that letting news of this Republican strategy get out will be enough to scuttle it.
More importantly, though, I really hope that this report is true. It says, in effect, that Republicans know they have lost and that they are simply trying to prolong the shutdown until they have enough cover to add a debt ceiling increase to the bill that reopens the government. Or, as the article says:
If the speaker were to move on a stopgap spending bill now, without conservative policy priorities attached, it would most likely pass with Republican and Democratic votes. But the ensuing Republican uproar — on and off Capitol Hill — would ensure that there would be no Republican votes to raise the debt ceiling. “It’s common-sense strategy,” one Republican strategist said. “If you’re going to take a bullet, you want to take just one.”I have thought all along that this is how it would have to play out. Apparently (for reasons I do not understand) I am wrong that the shutdown takes pressure off the debt ceiling, so my economic analysis is faulty. But I stand by my political analysis. The longer the shutdown persists, the greater the pressure to end it, and the more it will be conflated with the debt ceiling in the public eye. As both political and economic pressure grow, eventually Republicans will have to cave. It it grows strong enough, Boehner will be able to sneak a debt ceiling increase by relatively unnoticed in a vote to reopen government. Granted, prolonging the shutdown will be painful, but nowhere near as bad as a debt ceiling breach, so it is a price we will simply have to pay.
The story adds that Boehner does not fear losing his Speakership -- who else would want such a thankless job -- but does fear that passing a continuing resolution too soon would ruin his chances of getting by a debt ceiling increase.
So, if this story is correct, the advice to Congressional Democrats is hold firm and make no concessions until the Republicans are finally ready to crack on the debt ceiling as well. Then be willing to give some small, symbolic concession to allow Republicans to save face. The advice to Obama is to get the &^%$$#@! exchanges working so people can actually buy insurance and make the healthcare law irreversible.
My greatest fear is that letting news of this Republican strategy get out will be enough to scuttle it.
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