Thursday, October 13, 2011

[Case Study] Political Nonsense of the Debt Ceiling "Debate"

Normally there are different views in the media (except in echo chambers) but this is one thing that many different sources converged on as particularly nonsensical. This post lays out the information of what happened as an overview.

Washington Week: Interview


(full interview here)

Notes:

"As soon as Republicans show some leg on raising taxes, it's over"

There is no political incentive to do a good job on the economy, everything is focused on defeating the opposite side.

Republicans won't raise taxes and Obama won't accept cuts on medicare without a tax increase

"The dirty secret about the cuts is that they don't occur till 2013, which means its after the next election"...

In other words, congress can rewrite a policy before a default as they have allot of time, so the primary political goal has become to attack Obama (and each other) and NOT to fix the economy...

At one point, McConnell said: "I have little question that as long as this president is in the Oval Office, a real solution is unattainable." In an interview with CBS News, the president noted that McConnell has described his major political goal as making Obama a one-term president.


Here is the plan McConnel came up with...



1. "I would advocate that we pass legislation giving the president the authority to REQUEST of us an increase in the debt ceiling that would take us past the end of his term" - "that [legislation] would be subject to disapproval. That resolution of disapproval, if passed, would then go to the president, he could sign it or he could veto it." - McConnell - Theme: Passing legislation to 'disapprove it later.

2. "The reason default is no better idea today than when Newt Gengrich tried it in 1995, is it destroys your brand [i.e. America's credit rating] and would give the president the opportunity to blame Republicans for bad economy" - Defaulting was seriously tried by Newt in 1995.

3. "Look, he owns the economy. He's been in office almost 3 years now and we refuse to let him entice us into co-ownership of a bad economy" McConnel - The co-ownership is referring to the United states economy.

Important Republican Party Position: McConnel admits that making sure Obama is a one term President is his primary political goal. This means that the worse the economy is the better chances are that Obama will be a one term president.

Therefore...

Republicans devise a way to reject a debt cieling raise twice but getting the debt ceiling raised anyways (that way they can satisfy both constituntes, i.e. tea party and wall street)

[ Eric Cantor - only concession, "The fact they we are even talking about a debt ceiling increase..."]

AND...

Interview: How Republicans hope to put the blame on Obama by hoping people believe that not cutting taxes is the reason for the American economy getting destroyed...



Overview of the break-down of Congress:

Daily Show: When it comes to resolving the debt ceiling crisis, Congress is the equivalent of a skunk with its head in a jar of Skippy peanut butter.



On Gold:

Fear created by Debt Ceiling haggling in the US dropped the dollar and boosted the price of gold. As the BBC reports; "The price of gold has risen to a fresh all-time high of $1,594.16 an ounce, and the dollar has fallen, on concerns the US may default on its debts."


On raising the debt ceiling OR 'putting the debt ceiling in context of modern economics':


Above: George Bush increased the debt ceiling in 2002, 2003, 2004, 2006. 2007 and twice in 2008 (The Democrats have used the same strategy, though ineffectually)

Rather than defaulting on debts it makes more sense to raise the ceiling and solve the budget problem. THEN, over time, the debt will decrease if that is how the budget is balanced. 

The speaker of the house voted for spending that led to the current debt...

[Note: Left out unfunded Bush wars + the huge reduction in taxes for the rich which is the single largest contributor towards the debt i.e. if you don't remove the causes of a problem the problem will persist.]


By Fareed Zakaria, CNN "I know you have all heard so much about the debt ceiling that you're probably exhausted. But I think it's important to point out a few facts because this matter has been so clouded by rhetoric.

Did you know that there is only one other country in the world that even has a debt ceiling? That's Denmark, a strange anomaly, and its debt ceiling is deliberately kept very high so that it will never need to be raised.

Why does no one else have a debt ceiling?

Because when a legislature votes to authorize spending at a certain level but authorizes tax revenues at a lower level, it is assumed that the government will have to borrow the difference.

The vote to have higher expenditures than tax revenues is - in effect - a vote to borrow money to cover the difference.

And in the United States, Congress - including Republicans - voted for a budget in which expenditures exceeded tax revenues.

The logical consequence of that budget - again, passed by Republicans and Democrats, is that the government has to make up the difference by borrowing.

"To come at it now after the budget has been passed is like getting your Visa bill and calling up the company to say, "Actually we don't want to buy all that stuff we bought."



 From CNN

Anderson Cooper: They're saying they're not holding anybody hostage. They're saying, 'Look, this is what we said we would do to get elected. We've been elected. This is what people elected us to do.'

Fareed Zakaria: Well, unfortunately, as I say, I think they don't understand the workings of democracy. They have not been elected as dictators of the United States. They have been elected to one house in one branch of the American government. The only way you can translate your wishes into public policy in America is if you can convince your branch and the other one, the Senate and the White House, to go along with it.

If you can't, you've got to figure out amongst yourself what you can agree on. This is why it is fundamentally anti-democratic –"counterconstitutional" in the words of Charles Krauthammer - to be trying to do this. It's just an extraordinary act of hostage-taking on the part of the Tea Party. It is holding the country hostage.

And it has already damaged the good standing of the United States. It's very important to understand that Tea Party talks a lot about morality. In a capitalist framework, the obligation you owe in terms of repaying your debts is a moral obligation. When the Visa bill comes you can decide that stuff you bought is stuff that you don't want. You pay the bill.

Then you can have an interesting conversation about how to reform your spending. But you can't renege on your debts.



From The Economist:

The problem for Republicans, then, is that the debt ceiling is not the size of government. The latter is something you can toy with without the chance of sudden default. The former is not. Or, to use everyone's favourite analogy regarding the debt ceiling, there seems to be some disagreement over who the hostage is. Much of the public thinks the hostage is big government, and many place little value on its life. Republican leaders, though, know the hostage is actually America's credit-worthiness and economic stability. That should make things interesting if ever it comes time to pull the trigger."


Another article from The Economist:

The sticking-point is not on the spending side. It is because the vast majority of Republicans, driven on by the wilder-eyed members of their party and the cacophony of conservative media, are clinging to the position that not a single cent of deficit reduction must come from a higher tax take. This is economically illiterate and disgracefully cynical.

And the closer you look, the more unprincipled the Republicans look. Earlier this year House Republicans produced a report noting that an 85%-15% split between spending cuts and tax rises was the average for successful fiscal consolidations, according to historical evidence. The White House is offering an 83%-17% split (hardly a huge distance) and a promise that none of the revenue increase will come from higher marginal rates, only from eliminating loopholes. If the Republicans were real tax reformers, they would seize this offer.

Both parties have in recent months been guilty of fiscal recklessness. Right now, though, the blame falls clearly on the Republicans. Independent voters should take note.



From "The Guardian"

"But though the speaker sets the agenda, he quite clearly took his cues from a boisterous set of backseat drivers: his new Tea Party members."


From the Director of the Maurice R. Greenberg Center for Geoeconomic Studies and Paul A. Volcker Senior Fellow for International Economics at the Council on Foreign Relations;

The U.S. debt deal announced tentatively in Washington on Sunday may have been the best that was politically possible; but it is still scarcely worthy of the name. Barring a last minute break-down in negotiations, it will save the U.S. government from defaulting on its obligations to pensioners and others. But it does not address the long-term fiscal challenges facing the nation. It does not remove the policy uncertainty that is damaging the economy. And it does not undo the severe harm to America's reputation caused by the standoff.


Given that a debt ceiling has nothing to do with how a country organizes it's finances but with its reliability in the market place... here is an example of an echo chamber that was promoting the idea of a default (and may still be doing so)



On Taxes

To balance the budget you need to cut spending and raise revenue. Taxes is one of the main ways revenue is raised. [Learn more about economics here]

Daily Show: Unlike liberal elitist job evolutionists, Republicans believe in job creationism as part of their conservative tax cut religion.


Note: There are no negotiations for political reasons, history proves this! Reagan increased taxes in the 1980's during a recession and he is the one most Republican's turn to as their role model. Clear political nonsense.

Ronald Reagan actually increased taxes, putting the tax burden on the middle class and poor, which contributed to the increase in economic inequality in the US:

Ultimately, Reagan signed measures that increased federal taxes every year of his two-term presidency except the first and the last. These included a higher gasoline levy, a 1986 tax reform deal that included the largest corporate tax increase in American history, and a substantial raise in payroll taxes in 1983 as part of a deal to keep Social Security solvent. While wealthy Americans benefitted from Reagan's tax policies, blue-collar Americans paid a higher percentage of their income in taxes when Reagan left office than when he came in.

Moment of Zen: Somehow the fact that Taxes are revenue is consistently ignored...


Note: George Bush says that the lack of revenue that is one of the reasons for the financial mess the country is in should be extended permanently (complete lack of awareness of economic realities - same no tax rise attitude as the Tea Party)

Related: Problems with Credit Rating Agencies
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