[Marxism] Elizabeth Drew on the debt ceiling crisis

Louis Proyect lnp3 at panix.com
Mon Jul 25 13:40:15 MDT 2011


(Drew is a fairly conventional inside-the-beltway pundit, so her 
disgust with Obama in this article is noteworthy.)

http://www.nybooks.com/articles/archives/2011/aug/18/what-were-they-thinking/

What Were They Thinking?
August 18, 2011

Someday people will look back and wonder, What were they thinking? 
Why, in the midst of a stalled recovery, with the economy fragile 
and job creation slowing to a trickle, did the nation’s leaders 
decide that the thing to do—in order to raise the debt limit, 
normally a routine matter—was to spend less money, making job 
creation all the more difficult? Many experts on the economy 
believe that the President has it backward: that focusing on 
growth and jobs is more urgent in the near term than cutting the 
deficit, even if such expenditures require borrowing. But that 
would go against Obama’s new self-portrait as a fiscally 
responsible centrist.

Lawrence Summers, Obama’s recently resigned chief economic 
adviser, said on The Charlie Rose Show in July that he found it 
“dispiriting” that “all of the energy is on the projected 
deficits…when the problem right now is that the economy is in 
danger of stagnating from lack of demand.” The Republicans had 
made it clear for months that they would use the need to raise the 
debt ceiling as an instrument for extracting concessions from the 
Democratic President in the form of more cuts in federal programs. 
And the President assented to their premise, but only if there 
should also be some additional revenues. Were they all insane? 
That’s not a far-fetched question.

The President argued that it’s critical to make cuts that will 
“get our fiscal house in order,” so that the American people and 
the politicians would accept the idea of new programs leading to 
growth and more jobs. But there are numerous indications that the 
public is ready for such programs now, and serious analysts see no 
reason why he should not also be taking such steps now, even if 
this increases the deficit in the short run. But that would be at 
odds with Obama’s current self-portrayal. People who are looking 
for work, or worried about their unemployment insurance, or 
getting their kids to college, may not be impressed with the 
argument that they must be patient while the President adjusts his 
fiscal image in time for the 2012 election.

Since the President wanted to cut spending but also increase taxes 
and the Republicans insisted on cuts with no new taxes, they were 
for months too far apart to find much agreement on a budget plan 
to be attached to the debt ceiling increase—which had to be 
enacted by August 2 to avoid a default. No one could quite believe 
that this would happen, because it was so unthinkable; it was 
assumed that the two parties would reach agreement. Each side 
actually expected the other to be more flexible. The Republicans 
assumed that the President would be pliable; the Democrats didn’t 
expect the Republicans to be so inflexible about raising taxes.

It didn’t turn out that way. The Republicans were actually 
divided—the older guard against the Tea Party. But this old guard 
was by nature further to the right than the former old guards, and 
the Tea Party drove it further right still. The Republicans 
adopted their partly ideological, partly fearful, position that 
none of the reductions in projected deficits could come from 
increased tax revenues. The President agreed that tax rates would 
not be raised—though they are at their lowest level in sixty 
years, since the presidency of Harry Truman. The administration 
and other Democrats had thought that it would be easier to remove 
some tax breaks from the tax code.

The Republicans, with Alice in Wonderland logic, termed any 
elimination of a tax break a tax increase. Moreover, the breaks 
included in the tax code were there because they had been 
sponsored by an important member of Congress, or supported by a 
powerful lobby on behalf of one interest or another. After the 
President, in a press conference in late June, inveighed against 
tax breaks for corporate jets, the industry quickly insisted that 
such a change would cost jobs.

The very basis of the negotiations was odd. A vote to raise the 
debt limit simply validates spending decisions that had already 
been approved by Congress, and it is usually automatic. It does 
nothing to curb spending. But there is nothing usual about the 
current Congress. The recent negotiations over raising the debt 
limit could have been seen as having an absurd, antic quality, if 
they hadn’t been so risky to most people living in this country 
and so unfair in their potential impact on the various income 
groups, with consequences, too, for the global economy. The 
negotiations were ridiculously contorted—when one side refused to 
discuss a major topic, such as taxes, were they actually 
negotiations at all? Similarly, Democrats balked at serious cuts 
in entitlement programs. So there was a standoff.

As August 2 approached, the possible effects of default should 
have become familiar to anyone paying the slightest attention. The 
particulars had been recited, and published, over and over again 
by the President and some officials in the hope of scaring the 
members of Congress or their constituents. They spoke of not 
enough money being available after interest on the debt was paid. 
There might not be enough for popular programs such as Social 
Security or Medicare or veterans’ benefits—of which just about 
everybody was either a beneficiary, or knew or was related to 
someone who was. As the possibility of default grew near, the 
President wasn’t above warning that he couldn’t guarantee that 
Social Security checks would go out. There were predictions of 
rising interest rates and Treasury Secretary Timothy Geithner 
spoke of a second recession.

These warnings did result in a shift of opinion in mid-July in 
favor of lifting the debt ceiling. Standing against them were the 
countless number of people who didn’t believe anything the federal 
government said, and their know-nothingism was reinforced by 
opportunistic political figures. The self-appointed head of the 
congressional Tea Party and presidential candidate Michele 
Bachmann made denial a major part of her campaign: “Don’t let them 
scare you by telling you that the country’s going to fall apart.”

Thus the year 2011 had come to be dominated by the Politics of 
Calamity. There was a pattern. In the spring, with the threat of a 
government shutdown for the rest of the fiscal year, the 
Republicans, with the Tea Party representatives in the lead, had 
set the terms of the debate over a continuing resolution. They 
backed the President—who in his eagerness to establish his 
credentials as fiscally responsible hadn’t engaged them in a 
fight—into a corner. Obama and House Speaker John Boehner engaged 
in frantic negotiations at the White House. What these two men had 
agreed on wasn’t known for days, as aides scrambled to figure out 
what they had decided. Finally a continuing resolution was passed.

Months later, with the threat of a government default if the debt 
ceiling was not raised by August 2, the Republicans once again 
seized the agenda and demanded that there be a ten-year budget 
with major spending cuts. The President had yet to put forward a 
serious long-term budget of his own. The regular legislative 
process was then superseded by policy being made, in a room out of 
sight of the press and the public, by negotiators facing the 
threat of the United States government going into default. It 
takes the threat of something awful happening to drive the 
politicians—fearful of the effect on their careers—to bring 
deliberations to a close.

The hitch was that Republicans chose to use the statutory increase 
in the debt limit—by about $2.2 trillion on top of a $14.2 
trillion debt—as a lever to exact more cuts in spending, from 
funds that had already been authorized or even spent. In a speech 
on May 9 before the Economic Club in New York, John Boehner 
advanced the novel theory that every dollar by which the debt 
ceiling was increased had to be offset by cutting a dollar in 
spending.

The Tea Party’s strength was larger than its numbers—about eighty 
in the House and as few as four in the Senate—because the entire 
House Republican freshman class and some more senior members were 
sympathetic to its views, and because the ghost of Bob Bennett now 
haunts many Republicans. Bennett (still alive), a solid 
conservative three-term senator from Utah, was, astonishingly, 
rejected for reelection last year by the Utah Republican caucus 
for having been insufficiently pure in his conservatism. (His vote 
in 2006 against a constitutional amendment to ban flag-burning was 
seen as heresy.)

If Bob Bennett could be dumped, no one was safe. Boehner himself 
was facing a possible primary challenge. Some Tea Party members 
dug in on the debt ceiling because they, too, feared attacks or 
challenges, principally from people who would accuse them of not 
forcing sufficient cuts or of failing to keep their pledge not to 
raise the debt limit.

The Republicans embraced a philosophy of no new taxes or revenues 
that had little relation to reality—except for the fact that their 
long-standing goal has been to shrink the size of the federal 
government. This began with the major tax cut passed early in 
George W. Bush’s presidency, which purposely put serious pressure 
on domestic programs and which some saw at the time as folly—folly 
with grim implications for the future.* That tax cut, renewed in 
December with Obama’s assent (he didn’t have the votes to stop it, 
and he got some stimulus money in exchange), began the 
Republicans’ march from the $137 billion surplus Bill Clinton had 
bequeathed the country to the deficit of $1.2 trillion when Bush 
left office. It accounts for more than one quarter of the current 
deficit.

Obama’s proposal to end the Bush tax cuts for those making over 
$250,000 was of course not expected to go anywhere, especially in 
the House. That left tax expenditures—or “loopholes” permitting 
tax deductions. But when, on June 23, the Democrats offered their 
list of revenue-raising possibilities in the bipartisan talks 
presided over by Vice President Joe Biden, House Majority Leader 
Eric Cantor dramatically walked out. The bipartisan group had 
already agreed to over $1 trillion in spending cuts, but this was 
contingent on increasing revenues as well. Cantor’s abrupt exit 
was generally interpreted as an act intended to keep his 
fingerprints off any revenue increases. He would leave that to 
Boehner, whose position Cantor is understood to covet.

Moreover, Boehner was known to have met privately with the 
President just before the walk-out; if there were to be anything 
that could remotely be called a tax increase, a revenue increase, 
what have you—let Boehner do it. Meanwhile, Cantor would keep his 
much closer ties with the Tea Party intact. If Boehner stumbled, 
he’d be ready to take his place.

The politics of the debt ceiling were particularly tricky: 
Boehner—and the President—knew that perhaps all of the Tea Party 
members were, “on principle,” unlikely both to vote to raise the 
debt ceiling and to vote for any measure that had even a 
suggestion of an increase in revenues. The Speaker would therefore 
need a large number of Democrats to get a vote through the House. 
Boehner hadn’t realized at first that he’d have so many Republican 
defectors—fifty-four—who voted against the continuing resolution 
he’d negotiated with Obama in early April, on the ground that it 
didn’t cut spending enough, though Boehner had, in effect, taken 
Obama to the cleaners. This established in both Democrats’ and 
Republicans’ minds the thought that Obama was a weak negotiator—a 
“pushover.” He was more widely seen among Democrats and other 
close observers as having a strategy of starting near where he 
thinks the Republicans are—at the fifty-yard line—and then moving 
closer to their position.

John Boehner; drawing by John Springs

Finding a solution to reducing the deficit that was agreeable to 
Boehner, to Cantor, to former Speaker Nancy Pelosi, to Senate 
Minority Leader Mitch McConnell, and to the President was no small 
task. The men, who had rudely and unwisely excluded Pelosi, now 
the minority leader, from their deliberations, could no longer 
avoid dealing with her. They’d considered Pelosi a bit of a pain, 
insistent as she was on standing up for liberal principles.

Boehner and Cantor, and also Boehner and McConnell, have had their 
political differences and conflicting political exigencies. 
Boehner of course wants to retain Republican control of the 
House—it’s not inconceivable that the Democrats could pick up the 
necessary twenty-four seats to recover it. Therefore, Boehner 
didn’t want his flock to have to cast a controversial vote anytime 
close to the election. On the other hand, with twenty-three 
Democratic senators up for reelection, McConnell has had his eye 
on a Republican takeover of the Senate. His party would need to 
pick up only four seats. Therefore, he was looking for a way to 
force a controversial vote closer to the election.

In early July, when Obama suddenly injected Medicare, Social 
Security, and Medicaid into the deficit and debt negotiations, 
many, perhaps most, Democrats were dismayed. They believed that 
the President was offering up the poor and the needy as a 
negotiating gambit. (His position was that if the Republicans 
would give on taxes, he’d give on entitlements.) A bewildered 
Pelosi said after that meeting, “He calls this a Grand Bargain?” 
And she came down firmly against any changes in those programs 
that would hurt beneficiaries.

Moreover, the Democrats had their own political reasons for 
opposing reductions in Medicare benefits. They had had great 
success in campaigning against Paul Ryan’s bizarre proposal, 
adopted by the House (despite even Boehner’s expressed 
misgivings), that would turn Medicare into a voucher system. 
According to Ryan’s plan the government would give future eligible 
Medicare recipients $6,000 and let them shop for private 
insurance. (Good luck.)

Having made Ryan’s proposal the centerpiece of the campaign, the 
Democrats had recently won a special election in a New York 
district that had been held by the Republicans since the 1950s. 
The Democrats believed they were onto a good thing.

The question arises, aside from Obama’s chronically allowing the 
Republicans to define the agenda and even the terminology (the 
pejorative word “Obamacare” is now even used by news 
broadcasters), why did he so definitively place himself on the 
side of the deficit reducers at a time when growth and job 
creation were by far the country’s most urgent needs?

It all goes back to the “shellacking” Obama took in the 2010 
elections. The President’s political advisers studied the numbers 
and concluded that the voters wanted the government to spend less. 
This was an arguable interpretation. Nevertheless, the political 
advisers believed that elections are decided by middle-of-the-road 
independent voters, and this group became the target for 
determining the policies of the next two years.

That explains a lot about the course the President has been taking 
this year. The political team’s reading of these voters was that 
to them, a dollar spent by government to create a job is a dollar 
wasted. The only thing that carries weight with such swing voters, 
they decided—in another arguable proposition—is cutting spending. 
Moreover, like Democrats—and very unlike Republicans—these voters 
do not consider “compromise” a dirty word.

The President proposed at least two modest plans for stimulus 
spending, someone familiar with all these deliberations told me, 
“but he’s not as Keynesian as before.” This person said, “If the 
political advisers had told him in 2009 that the median voter 
didn’t like the stimulus, he’d have told them to get lost.” By 
2011, in his State of the Union address in January he moved from 
jobs creation (such as the stimulus program) toward longer-term 
investment.

The speech Obama gave on April 13 marked his conversion to fiscal 
centrism; to being the fiscally responsible Democrat. In that 
speech he stated that he wanted to reduce the debt by $4 
trillion—thus aligning himself with the Republicans—but also asked 
for revenues to partly offset that reduction. It was all about 
reelection politics, designed to appeal to this same group of 
independents. “And that’s why,” I was told by the person familiar 
with the White House deliberations, “he went bigger in the deficit 
reduction talks; bringing in Social Security is consistent with 
that slice of the electorate they’re trying to reach.” This person 
said, “There’s a bit of bass-ackwardness to this; the deficit 
spending you’d want to focus on right now is the jobs issue.”

This all fits with another development in the Obama White House. 
According to another close observer, David Plouffe, the manager of 
Obama’s 2008 presidential campaign, who officially joined the 
White House staff in January 2011, has taken over. “Everything is 
about the reelect,” this observer says—”where the President goes, 
what he does.”

Plouffe’s advice to the President defines not just Obama’s 
policies but also his behavior. Plouffe tells the President, 
according to this observer, that the target group wants him to 
seem the most reasonable man in the room. Plouffe is the 
conceptualizer, and Bill Daley, the chief of staff who shares 
Plouffe’s political outlook, makes things happen; Gene Sperling, 
the director of economic policy, and Tom Donilon, the national 
security adviser, are smart men but they come out of politics 
rather than academia or deep experience in their respective 
fields. Once Austan Goolsbee, chairman of the Council of Economic 
Advisers, departs later this summer, all of the President’s 
original economic advisers will be gone. Partly this is because 
the President’s emphasis on budget cutting didn’t leave them very 
much to do. One White House émigré told me, “It’s not a place that 
welcomes ideas.”

Because of the extent to which the President had allowed the 
Republicans to set the terms of the debate, the attitude of 
numerous congressional Democrats toward him became increasingly 
sour, even disrespectful. After Obama introduced popular 
entitlement programs into the budget fight, a Democratic senator 
described the attitude of a number of his colleagues as:

     Resigned disgust at the White House: there they go again. 
“Mr. Halfway” keeps getting maneuvered around as Republicans move 
the goalposts on him.

According to a report in The Hill newspaper in late June, the 
tough-minded, experienced, and blunt Democratic Representative 
Henry Waxman of California told Obama in a White House meeting 
that he’d asked several Republicans about their meeting with him 
the day before, and, “To a person, they said the President’s going 
to cave.” Then the congressman said to the President of the United 
States, “And if you’re going to cave, tell us right now.” The 
President was reported to have been displeased, and responded, 
“I’m the President of the United States; my words carry weight.”

Much discussion went on about whether the result of the 
negotiations would be a “big” deal, reducing the debt by $4 
trillion, with $1 trillion coming from revenues and some sort of 
savings from entitlement programs, as the President and Boehner 
had privately discussed—although Boehner’s dream of a bipartisan 
deal was dashed by Cantor on behalf of numerous other House 
Republicans—or a “small” deal, cutting the debt by about $2 
trillion. It was easy to lose sight of the fact that the President 
was using a lot of his time and energy (he looked very tired) on 
the wrong subject. And that was even before the arduous, almost 
daily meetings with the two parties’ leaders.

With the negotiations stalled and time running out, McConnell, 
worried that the President had manuevered his party into a 
position where if there were a default the Republicans would be 
blamed, introduced his own proposal to break the impasse. The very 
shrewd McConnell warned his Senate colleagues that if they did not 
take this way out of the impasse, the party’s “brand would be 
badly damaged.” McConnell’s proposal handed over to the President 
the authority to raise the debt ceiling, which his own party had 
been trying so hard to exploit and never dreamed it would 
surrender to the President.

Under McConnell’s plan, the President would raise the debt ceiling 
three times for a total of $2.4 trillion before the November 
election. Each time, Congress would vote on a resolution of 
disapproval. The proposals Obama could offer would consist of 
spending cuts only, in keeping with the Republicans’ position that 
there would be no savings from the tax code. Thus McConnell had 
maneuvered the Democrats into having to cast three votes on the 
debt limit. He said that a major goal of his plan was to “reassure 
the markets that default is not an option.”

McConnell persuaded Harry Reid, the Democratic Senate leader, to 
cosponsor his proposal, incorporating Reid’s idea of setting up a 
bipartisan commission of members of the House and Senate who would 
draw up new budget proposals that would then go to both houses and 
be considered under a special procedure that would allow no 
filibuster and no amendments.

The new proposal also contained $1.5 trillion in budget cuts that 
had been agreed to by a bipartisan group of Senators presided over 
by Vice President Biden. These were the only cuts that the two 
parties could agree on, guaranteeing that the cuts would be much 
more painful for the Democrats.

With two weeks remaining before the day of default, McConnell and 
Reid were negotiating the fine points of their proposal, and 
Boehner had made a quiet overture for Nancy Pelosi’s support. 
(Pelosi had told people that she would demand future protection 
for Medicare and Social Security.) Some House Republicans 
expressed opposition to the Senate leadership’s plan. At the same 
time some conservative members were urging that Congress allow a 
default, saying that they didn’t believe the results would be as 
dire as the administration was warning. And then, suddenly, on 
July 19 the so-called Gang of Six, a bipartisan group of senators 
led by Democrat Kent Conrad, rode into town with a plan about the 
size of the one Obama and Boehner had been considering.

The plan envisaged cutting $3.7 trillion from the debt, but the 
details were vague, and it seemed very unlikely that such a 
complex plan—offered in the form of a four-page outline—with 
legislation involving several committees, could be drafted and 
passed by the Senate and the House within two weeks. The group had 
been holding back its plan at the White House’s request, but 
became impatient and fearful that Obama would cave again. The 
President said he liked the new plan though he had to know there 
was plenty in it for others to object to. It called for, to begin 
with, both tax revenues and deep cuts in entitlement programs. 
Substantial tension was growing in Washington, but to some extent 
it seemed a phony tension. McConnell and Boehner had vowed there 
would be no default. Now it was up to them and others to work out 
what to do instead.

The Republicans displayed a recklessness that should have 
disqualified them from being taken seriously. Any deal that was 
reached would contain substantial cuts in the coming fiscal 
year—too soon, as Fed Chairman Ben Bernanke and the head of the 
Congressional Budget Office Doug Elmendorf have recently warned.

The antitax dogma of the Republican Party is strongly rooted in 
mythology. The theory that tax cuts create jobs has been 
discredited by the results of George Bush’s tax policies. The 
Republicans cling to the myth that “small business” owners are the 
“job creators,” and so they oppose proposals to eliminate the Bush 
rate cuts for even those earning over $250,000. But relatively few 
small business owners earn $250,000—in fact, fewer than 3 percent 
of the 20 million people who file business income on their 
personal tax forms (the 1040s) earn that much.

Finally, the antitax position of many conservatives would seem to 
be illogical, since they also hate deficits: but their real aim is 
to reduce or eliminate federal programs. They call efforts to 
redistribute wealth “socialism,” but have no problem 
redistributing from the poor and middle class to the wealthy 
through taxes, as set forth in Paul Ryan’s budget plan, which the 
House approved on April 15. Under the Ryan plan, the taxes of the 
richest one percent of Americans would be cut in half, while taxes 
would be raised on most of the middle class. People earning over 
$1 million would be taxed at a lower effective rate than the 
middle class.

Consistent with the philosophy of Ryan’s idol Ayn Rand, this 
scheme would by 2050 eliminate virtually all federal programs 
other than defense and Social Security, much of which would be 
privatized, while his voucher program would replace Medicare. The 
Ryan plan was so radical that even Republican candidates have been 
distancing themselves from it though the party higher-ups had 
declared it a “litmus test” for Republicans seeking office.

Still, liberal-leaning budget analysts agree that the budget is on 
an “unsustainable” path, with debt constantly rising as a share of 
the Gross Domestic Product. As of now, the debt is close to 70 
percent of GDP. James Horney of the highly respected Center on 
Budget and Policy Priorities says that that’s a workable 
percentage, but that steps should be taken to stabilize it by the 
end of this decade. That would require, Horney says, a substantial 
amount of deficit reduction—no easy task—including increases in 
revenues.

This does not mean, Horney adds, that we need to balance the 
budget to reach that goal. If there are needs to be met by 
borrowing—especially now, to boost economic growth and 
employment—we should borrow. The borrowing today should go to 
extend unemployment benefits (scheduled to expire in December), 
create infrastructure programs that will provide jobs (for which 
there are a number of ideas floating around), as well as provide 
more fiscal relief to the states. (In the recent dismal 
unemployment figures, public employees were particularly hard 
hit—partly because they were a target of Republican governors.)

But even more significant is the question of how our leaders, in 
particular the President, ended up with such misguided 
policies—emphasizing budget- cutting over growth. The Republicans 
exploited the need to avoid an economic collapse that could result 
from not raising the debt limit by demanding that programs that 
Congress had agreed to should now be unagreed to.

The President began the year with the unfortunate slogan “Win the 
Future”—which emphatically meant growth and investment. He ended 
up in Republican territory, at least rhetorically accepting the 
highly flawed conception equating the federal government with a 
household: he and Goolsbee repeated the sampler-stitched maxim “We 
must live within our means,” ignoring that at times the government 
simply must borrow in order to meet the people’s needs, as is the 
case now, with high unemployment. It’s no time for austerity. 
Instead, the government is borrowing in order to give tax cuts to 
the wealthy and pay for at least two wars.

A final deal became exigent for the major players: naturally, 
Obama didn’t want to preside over a calamity; and just as 
urgently, the Republican leaders didn’t want to be pinned with the 
blame for bringing about the calamity—which poll after poll 
suggested they would be. Thus it was assumed that a deal would be 
reached not because the Republicans had a sudden surge of 
responsibility but because they feared the political consequences 
of not appearing to be responsible.

Anyway, they had lured the President so far onto their territory 
that any deal would represent a substantial victory for them—the 
President’s rhetoric notwithstanding. It was all about theater and 
politics. But Obama—and the country—would still have to live with 
the consequences of the policy.

Both the President and the House Republicans, the major parties to 
the negotiations, are running longer-term political risks. The Tea 
Party, which has dominated the entire eighty-five-member freshman 
class, or one third of the Republican House caucus, has pulled the 
House Republican Party so far to the right that it risks coming 
across to the public as too obdurate, as putting its own ideology 
and own partisan interests ahead of the nation’s needs. (And given 
the possible effects of a default by the United States, perhaps 
other nations as well.) The “old boys”—the “establishment” 
Republicans, represented by Boehner—were willing to compromise, 
while Cantor, as majority leader, had to pay attention to the 
rambunctious Tea Party group. Each was useful to the other.

In the end, the President had made the Republicans look bad, but 
what did he get for it? He ended up agreeing to new restrictions 
that will hamstring his policies for as long as he serves in 
office. His own actions will have led to new laws that forbid him 
to borrow money for any government policy—unless, at some time, he 
goes out and campaigns hard for raising taxes in any form. His 
actions so far shed light on how likely that is.

This country’s economy is beset with a number of new difficulties, 
among them that recovery from the last recession remains more 
elusive than was generally expected, while the US is confronting a 
variety of international economic instabilities, especially the 
large debts and possible default of several countries in the 
eurozone, bringing on unpopular austerity measures. Recent 
experience with what should have been a simple matter of raising 
the debt ceiling, normally done with no difficulty, is reason for 
deep unease about our political system’s ability to deal with such 
challenges.

—July 19, 2011





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