Monday, August 1, 2011

On the Debt Deal

The politics:

- The clearest demonstration in a while that politicians are either simply ignorant or they care more about their own reelection than the country. Not exactly a news flash, but sometimes it comes out more clearly than others.

- You hear a lot that we have a divided Congress. It's important to remember that with filibusters operating how they are operating in the Senate we really don't. What we have is a Republican majority in the House and no majority in the Senate, and while the White House is occupied by a Democrat he obviously has no legislative authority.

The deal:

- This is basically a Republican deal. All spending reductions, no tax increases, and increasing the debt ceiling. Granted, it's not a Tea Party murder-suicide pact that fails to raise the debt ceiling. But it's absolutely a Republican win.

- Debt ceiling is increased to 2013. I obviously think the mere existence of a debt ceiling is absurd but this is still much better than fighting it out again a few months from now.

- The debt ceiling is really the most important thing - I personally would have been willing to pay a pretty high price to get that. Yes, Obama had other options. I entirely agree. But I don't like the idea of a non-trivial portion of our population who already thinks he's illegitimate and tyrant thinking that he also blanatly flaunted the will of Congress. The fiscal policy outlook looked crappy even if Obama had to resort to these extraordinary measures, which means the economy would have stayed weak regardless. Why piss off that portion of the population unnecessarily? If we could do those extraordinary measures and have a robust fiscal policy I'd say poking the hornets nest might be worth the risk.

- No balanced budget amendment it seems - thank God. I don't know what prospect that had of passing anyway. But that was a supremely dumb idea.

- The language around the plan is odd, but it sounds like discretionary and defense caps immediately, which produces $1 trillion in savings over ten years. I don't know how much cuts that means in the next year or two, which is the important thing.

- Bigger cuts to come after 2013. I would have preferred the emphasis be on this, of course. Drop those caps in the near term and set up two commissions: an entitlement reform commission and a tax reform commission. Announce that we can't hold this long-term debt reduction hostage to the immediate requirements to raise the debt ceiling, so these commissions would work and argue and testify and report to Congress in 2013, when Congress would take up entitlement reform and tax reform. Seize the debt reduction issue by focusing on the actual debt reduction problem (the medium to long-term debt), rather than by caving on the short-term deficits which are not the problem.


  1. $520 billion out of defense initially; which would be rather awesome. It would dramatically reduce our defense posture I'd say, and that means less horse trading in the Congress over domestic spending.

  2. Of course let's remember what the so-called "cuts" are - they are reductions in the growth of spending - they are not reductions back to some past point.

  3. Gary,

    Just what I was about to write. Washington is not cutting spending. I wish it would. Some balanced budget amendment seems like a good idea to me. The Federal budget has doubled in the last ten years. The debt ceiling is not the problem; too much spending is the problem. I don't really believe all the "default" hysteria.

    Actually, this has all been rather good. I'll warm up to the Republicans if they keep fucking with the government like this.

    If the situation were reversed and Obama was exploiting some legal technicality to push for "universal healthcare," Democrats would think it quite acceptable to make the Republicans sweat. After all, they would say, countless lives are at stake; they would dismiss concerns about financial markets as Republican pandering to Wall Street interests. Politics is not about principles.

  4. Lee Kelly,

    Germany has a fairly newly minted "debt brake." Obviously I'd like to see it in action before it is implemented here in the U.S. though. For Keynesians it has the blessing that during a financial crisis the debt brake provides some flexibility.

    Also, the Swiss actually have a working "debt brake"; it has been in place since the late 1990s. The last I checked Switzerland wasn't swallowed by some 2012-like cataclysm as a result of its debt brake.

  5. "Why piss off that portion of the population unnecessarily?"

    That portion of the population is already pissed off, and will be pissed off regardless of what Obama does.

    This is the fallacy of Obama's actions that Krugman often alludes to. He consistently undercuts his progressive base in order to appease a crowd of people who consider him illegitimate regardless of what he does.

  6. Dan -
    If we could get what Krugman and I both want that would certainly be worth it.

    But we have two options: austerity and Obama becoming the guy that disobeyed Congress or austerity and Obama becoming the guy who compromised with Congress.

    If I thought we had the option of "robust fiscal policy and Obama is the guy that disobeyed Congress", believe me I would take that narrative.

    But Krugman doesn't seem to understand what's possible here. The best we could hope for is a clean debt ceiling increase and a continuing resolution. What the hell good is that? Is that worth the risk? Krugman acts like circumventing the debt ceiling is some kind solution. It's not. Even if big-man-Krugman as president would put his foot down on these talks, he STILL couldn't legislate his own appropriations bills.

  7. You know, for all the ramblings we have about the "paranoid right" (or left) being dangerous for this or that reason, it remains the case that the "paranoid center" who does the damage. So it really isn't the people that think that Obama is was born in Kenya (or alternatively that Bush faked his military record) who cause a lot of problems.

    Anyway, according to Krugman, we're on the verge of banana-republic land; does anyone else take that sort of hyperbolic language seriously?

  8. Of course let's remember what the so-called "cuts" are - they are reductions in the growth of spending - they are not reductions back to some past point.

    This is the most important part of the deal. They're not actually spending cuts - they're plans to spend a marginal amount less than they first thought.

    This is what the progressives are getting so upset about? Government isn't growing fast enough?

  9. Daniel wrote:

    [Obama] also [blatantly] flaunted the will of Congress.

    I think you meant "flouted." Sorry to be that guy, but people mix up "flout" and "flaunt" a lot so I thought I'd contribute...

  10. Sharing your pet peeves is dangerous business, Bob.

    Now you have to count on my embarassment over being wrong on the word to exceed my temptation to continue to use it this way jsut to bug you!

  11. Of course, on the budget deal, there is also the defense hawks vs. anti-tax folks in the Republican party to consider:

  12. Don't flaunt Bob's advise, Dan; he has a legitimate point. But this begs the question, "Can we extend this into a general principal?"

  13. "Of course let's remember what the so-called "cuts" are - they are reductions in the growth of spending - they are not reductions back to some past point."

    Yes, they are cuts according to CBO budget projections. If all federal government spending was frozen, by that standard it would constitute as a massive cut in government spending.

    Hopefully, Kuehn is aware of this.

  14. (Sorry that you feel the way you do about anonymous commenting. But . . . .)

    I've still amazed, stunned, dumbfounded, and disgusted that someone with a master's in public policy can't bother to understand why there is a debt ceiling.

  15. I don't know why governments have debt ceilings.... its not like they take the 'ceiling' part of it seriously, they keep raising it! In other words, why put a limit on something if you can just change the limit once you've hit it?

  16. It's not the government, strictly speaking, that has a debt ceiling. It's the Treasury. I assume we have all read the Constitution and are familiar with Article I Section 8--Congress has the power to pay debts.

    Now, instead of voting on every bond issue, what Congress has decided to do is to hand the power of issuing bonds to the executive. That means the Treasury has the authority to pay the debt. But, that has to be constrained somehow in order to preserve checks and balances--no congress is willing to give up total control over the purse strings. So, Congress authorizes the executive to issue debt up to a certain amount on it's own, with essentially zero oversight. The oversight, the check that exists is the debt ceiling.

    I doubt very much, given his expressed opinion of Congress, that DK is truly hoping that the US return to debating bonds (and the inevitable logrolling and whatnot) every week or so. I suggest that, if in fact DK is opposed to the ceiling, what he'd like is for the power of the purse strings to go to the executive. But I may be wrong . . . .

  17. You are quite wrong, Anonymous - and I've explained my position enough times by now. I have given no indication at all that the power of the purse strings ought to be anywhere other than the Congress - in fact I've EMPHATICALLY said the opposite. I don't know why you keep pushing this line of argument.

    However, the Congress shows no ability to understand that it can't legislate arithmetic. Decisions about whether to finance the government through debt or taxes SHOULD be made in the Congress - this Congress is refusing to make them by sending conflicting signals to the executive. They are asking for two irreconcilable things, and that's the problem.

    Now - this happens. New legislation often isn't completely reconcilable with old legislation. And I assume there is a legal process for reconciling the two. That should be followed here as well. Reconciling directly contradictory legislation from dysfunctional Congress is not ceding the purse strings to anyone.

    Now what is it that you want exactly? - that's what I'm not sure of. I want Congress to pass non-conflicting laws so that we don't have this mess in trying to reconciling them.

    If you don't see the mess that I see I have to scratch my head over exactly what role you think the Congress plays in this. People who have been firm on the debt ceiling have been saying that Obama should stop spending. How is that not removing the power of the purse from the Congress?

    And please stop commenting anonymously. It's not hard.

  18. I really don't know what to make of your pretzel of a reply. First you say that you have given no indication that the power of the purse should be anywhere other than Congress. Yet you go on to say that Congress is asking for two irreconcilable things, and you are on record as saying that there should be no debt limit. *shrug* With Congress at an impasse, your suggestion is to let the Treasury have a free hand . . . that's repositioning the power of the purse strings, no? It would be a whole 'nother thing if you hadn't repeatedly made statements in opposition to the ceiling--then you'd be calling on Congress to grow up and act responsibly.

    But, that's just one part of it. I guess I can get that you MAY be saying that Treasury should have no discretion.

    But this, "People who have been firm on the debt ceiling have been saying that Obama should stop spending. How is that not removing the power of the purse from the Congress?"--assuming by people you include members of Congress--is just terribly, terribly confusing. So, some people are saying that extra-budgetary spending by the executive should be curtailed, and they're the ones ceding the purse strings to the executive?

    The Tea Party fringe just gave Obama a golden opportunity to fulfill his campaign promises on Gitmo and Iraq (and others) by pulling out and shutting down, but instead we got rhetoric from the White House about missing SS checks (isn't SS still solvent? isn't there the beloved-by-your-camp lockbox??).

    "And please stop commenting"
    Got it.

  19. re: "With Congress at an impasse, your suggestion is to let the Treasury have a free hand"

    When have I ever suggested this?

    re: "So, some people are saying that extra-budgetary spending by the executive should be curtailed"

    Again, NO. Many who don't want to increase the debt-ceiling argue that budgetary spending (not extra-budgetary) should be curtailed. I don't have any inclination to review all your comments to see if you've said anything like this, but don't come complaining to me about taking powers from Congress if you do support something like that.

    I'm practically spoon-feeding this to you at this point. If you're still not understanding, I'm not sure what else to say.


All anonymous comments will be deleted. Consistent pseudonyms are fine.