Friday, May 18, 2012

This Week in Deficit Politics: The Consequences of Well-Meaning (but Foolish) Choices

-- Posted by Neil H. Buchanan

Even for those readers who do not obsessively follow such matters (that is, normal people), this week was a rather interesting one in the politics of deficits and debt. Speaker of the House John Boehner announced on Tuesday that he and the Republicans are planning to use the debt ceiling later this year to try to extort more spending cuts from the White House. He made it clear that they would refuse to raise the debt ceiling, unless the increase in the ceiling is matched by larger spending cuts. (It is not at all clear why that is a helpful or meaningful metric, even in the twisted minds of anti-government fanatics. Why not a two-for-one tradeoff? Or more? Why are the two even connected? But let us leave that aside for now.)

The same day, Republican Presidential nominee-to-be Mitt Romney tried to change the subject from gay marriage back to the economy by excoriating President Obama for the increase in deficits and debt during Obama's Presidency. “A prairie fire of debt is sweeping across Iowa and our nation, and every day we fail to act that fire gets closer to the homes and children we love," he said. To use a technical term: Yeeesh.

A few reactions:

(1) The Republicans still apparently believe that there is nothing wrong with threatening to destroy the full faith and credit of the United States, by bringing strongly into doubt whether the Congress will authorize the borrowing necessary to pay the obligations to which Congress itself has committed the country. One House Republican said that the notion of default is "a complete red herring," adding: "The only way that our sovereign debt would be compromised is if the president and Treasury chose not to pay it. The real jitters come from the fact that again we have racked up more debt in three years than in the previous 200. It’s unsustainable.”

What? This is, at best, an argument that the President can "prioritize" spending, so that he can violate every other legal obligation in the name of paying holders of the national debt (principal and interest, or just principal?). That argument is wrong, but at least it is coherent.

At worst, however, the quote above is gibberish. How bad are the "real jitters" in the financial markets, jitters that would supposedly send U.S. interest rates sky-high? So bad that the U.S. Treasury can now borrow long term at rates well below 2%, which is at or below 0% after adjusting for inflation. That is, savvy investors are giving money to the United States government and are gladly accepting in return money that will buy less than the principal could buy today. The Treasury is now effectively a safe deposit box, charging handling fees. Rational investors' willingness to do this is based on jitters, but not about the last 3 years of deficits.

By the way, the Member of Congress who uttered that word salad is not some mindless back-bencher. He was their pick to co-chair last year's failed "super-committee." You know, the guys who were specially selected for their expertise on deficits and debt!

(2) As a matter of my own careerism, I must say, "Thank you, Republicans!" I have never much wanted to be a talking head, but it worked out that way last summer. For a few weeks, I was heavily in demand. This was because I was one of the people calling on President Obama to deem the debt ceiling statute unenforceable, because it violates the Constitution. Now that Professor Dorf and I have written our article on that topic, to be published in Columbia Law Review in October, the timing could not be better. Expect to see us all over the place as this issue goes nuclear. Maybe everyone else should be saying, "Thanks a lot, Republicans." After one or two media appearances, I will probably feel the same way.

(3) Where is the payoff that President Obama's political advisors promised from his "pivot" to deficit reduction in 2010? The whole idea, remember, is that Obama was going to show his "responsibility" by being willing to discuss deficit reduction (in the midst of the worst economic downturn since the Great Depression, for crying out loud!), thus blunting Republicans' efforts to paint him as fiscally irresponsible. My argument then was that -- purely as a political matter -- I would rather defend, say, $20 trillion in debt to a country with 6% unemployment than $16 trillion in debt to a country with 8% unemployment (and the threat of an imminent return to recession).

And what are we seeing? Romney is not running on numbers. He is not saying: "Look, it would have been OK if the debt were only, say, $14 trillion, but because it is about to hit $16.4 trillion, Obama must be stopped." He is saying: "Debt bad. Deficits high. Obama's fault." There was no scenario in which Obama could blunt the political assault that any Republican was sure to mount, because the "grand compromise" approach will not work when any mindless politician can say: "Wow. Look at that huge number! I mean, trillions and trillions. Debt is too high."

There was no way to make the deficit go down in the short term, because the subsequent effect on the economy would have wiped out any deficit reductions; and certainly there was no way to make the debt go down in a few short years to a number that did not have the word "trillion" in it. If this is not political malpractice, what is?

(4) I actually accept the sincerity of Obama and other people who hold center-right views on economic policy. They believe that deficit reduction is very important to the long-run well-being of the country. They apparently believe that they are the only thing preventing the whole political system from throwing caution to the winds, with liberal Democrats spending like mad and Republicans cutting taxes like mad.

They are right that deficits can be too high. They are wrong that we are anywhere close to being in danger of spending too much right now -- on either counter-cyclical policies, or on long-run investments in public goods. They are even more wrong that the only choice is between mindless anti-deficit/debt rhetoric and fiscal insanity. And they are completely deranged in imagining that the next Republican administration would not turn all of the Democrats' compromises on spending into an excuse for further tax cuts, thus fueling another fake "deficit crisis."

Now, after years of hanging their heads in shame about deficits and spending, these self-styled political realists are stuck defending themselves against an accusation that everyone knew would be leveled against them. The accepted narrative says that Republicans can win by screaming about deficits and debt. Obama and his associates, following in the footsteps of Bill Clinton and all the others who claimed that it would be "political suicide" not to surrender on deficits, now find that they are presiding over a weak economy, with no politically salable defense against the charge that they are responsible for too much borrowing. (Yes, it was Bush's fault. But would you rather say that, or actually be operating in a political environment where your party had not given up any ability to defend deficit spending?)

For the country's sake, I hope that the Obama people can find ways to get voters to think about other issues. As it stands, however, Obama has simply made himself an easy target on deficits. He reinforced the narrative, leaving him with no room to maneuver.

3 comments:

Super Z said...

I'm not sure that Obama has no choice in this matter; consistency is not a given in politics. I don't think consistency is particularly important on a topic that most Americans don't understand, so Obama can probably espouse whatever position he wants to regarding deficit spending without upsetting his "fan base".

Blud Bitter said...

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