Calling their bluff and Obama’s trump card

The temperature hit a record 105 degrees Friday at Washington Dulles International Airport, a new record. The temperature must have been at least as hot at the White House. There President Obama and House Speaker John Boehner were engaged in their latest discussion regarding raising the nation’s debt ceiling. Apparently tempers flared, Boehner left, and the president and speaker were left to give dueling press conferences to explain why the other side was being unreasonable. Meanwhile, social security recipients were anxiously wondering if they were going to get their checks on August 3rd.

The dueling press conferences were at least instructive in underscoring the fundamental issue of disagreement. It’s not the deficit that really matters, it’s not even the debt ceiling, and it’s not jobs or the state of our economy. It’s taxes. For House Republicans, the bottom line is no taxes must be raised, not even when our deficit is more than a trillion dollars a year. Unfortunately, they have boxed themselves in by claiming that debt and the deficit were more important when all along it was really about taxes. Now, as President Obama pointed out in his press conference, they are left with the inability to say yes.

To Republicans, the deficit is less important than no new taxes. It turns out that for them taxes trump everything. It used to be that Pentagon spending was sacrosanct for Republicans: how could we possibly endanger our national security? Well, not anymore: when push comes to shove they would rather reduce our military budget than raise a dime in new taxes. The logic gets fuzzy when it comes to agriculture subsidies and the like. In their minds, taking these away without adding subsidies somewhere else is a tax hike. Thus spake Grover Norquist. But cutting Pentagon spending in general, even though there is a huge defense community that depends on federal spending, is apparently okay if it avoids a tax hike.

The debt ceiling is fungible as well. Republicans are not opposed to raising the debt ceiling, but only if there are no new taxes and “savings” by cutting expenditures exceeds the amount by which the debt ceiling is raised. It is also fine to not pay our bills, bring the economy into depression, leave grandma without her social security check and raise our long-term borrowing costs rather than raise a single dime in new taxes.

One can arguably say that Republicans are crazy, but one cannot fault them for inconsistency. They mean what they say and they say what they mean unless, and this is a very big unless, they can have a sudden change of heart or Speaker Boehner can convince enough House Democrats and non-Tea Party Republicans to go for another deal.

So far Republicans have been remarkably tone deaf to their corporate masters, who are now telling them, “Okay, enough is enough. Time to sober up and compromise now.” Too bad these same corporate masters were not working to elect establishment Republicans rather than Tea Party Republicans last year. While they achieved their desire for a majority of Republicans in the House, it came at the expense of political accommodation, hitherto a necessary skill when there is divided government.

Yet, there is a power stronger than even Grover Norquist that Republicans have foolishly ignored until now, but they will discover on or around August 3rd if the debt ceiling is not raised. It is the power of senior citizens who depend on social security but who will not get it. It is the power of sixty million angry and desperate phone calls from hot-tempered grannies and gramps who, if they are mobile, will also be picketing outside their representative’s offices. You really don’t want to rile up these folks, because they were the ones who voted you into office, but they did so on the condition that you would not mess with their junk.

Politically, letting Republicans push us into default probably would help rather than hurt the president, providing it can be shown that he did everything possible to prevent a default. Given that the Senate has already rejected the House’s plan, this has already been demonstrated. The economic effect of default would likely be catastrophic, but the political effect would be to throw the Tea Party out in 2012, and likely lead to the demise of the Republican Party brand.

Still, there has to be one adult left in the room. If I were President Obama, and if push came to shove I would say that the 14th Amendment gives me the right to extend the debt ceiling unilaterally to cover all debts covered by law. I would also cross my fingers and hope that at the 11th hour that there were enough worthy creditors willing to loan us money to avoid default. I expect he has his lawyers all over the problem. That is his trump card that he will be forced to pull out only if all else fails.

If I was the president

Gah! The amount of disinformation going on about the debt ceiling, the budget deficit and the economy continues to astound me. That so much of it is sticking goes to prove that money can buy pretty much anything. The oligarchy is clearly in charge, which is why closing loopholes for people who own private jets is viewed as anathema by the Republic Party. We’re talking freakin’ corporate jets, jets that cost tens of millions of dollars at least. Chances are if you or your corporation own one or more corporate jets, you are beyond rich. You are filthy rich and the last thing you need is yet another tax break aimed at your jet. It’s amazing Republicans aren’t laughed out of the room when they try to defend these and other outrageous tax breaks.

It’s probably a good thing I am not president right now because here is what I would say to Republicans: I dare you not to extend the debt ceiling. In fact, I double dare you. If you are anxious to end your party in one fell swoop, and make it as irrelevant as the Whigs, go right ahead. It’s not like we don’t already have a budget passed into law. You have already agreed how much we can spend through the end of the fiscal year but you won’t even pony up the money to pay for that? What does “law” mean to you? Is it a recommendation or something binding on the country? In any event, if we have another fiscal calamity because your party would not extend the debt ceiling just to cover the spending we already signed into law, your party will go straight over the cliff in 2012. It would be nice if the Senate could start first, but the constitution requires all spending bills originate in the House. The Senate could easily pass an extension of the debt ceiling under budget reconciliation rules. So go right ahead, Republican Party. Die by putting principle before pragmatism. The price may be horrendous to our livelihoods and economy, but at least the cancer of your party will be gone and saner heads can rule again.

Furthermore, I would not sign any omnibus spending bill into law until every current lawmaker who voted for the Medicare Part D legislation, the Bush tax cuts and two wars on borrowed money first said they were sorry and that they regretted their decision in writing. You cannot have it both ways. You cannot cause the problem in the first place and then refuse to raise taxes to address the problem you created. It’s one thing to say “I’m sorry”, it’s another to follow through with an act of contrition. I am interested in deeds, not words. Now is the time to pay for your mistakes not by just admitting they were wrong but helping us get out of them. You have to undo your mistakes. You must swallow hard and let the Bush tax cuts expire. You must agree to sizeable defense cuts because there is no way to be fiscally solvent otherwise.

And Democrats, you are not scot-free either. Medicare and Medicaid are a mess. They are definitely more efficient than private health insurance, but they cost way too much and Medicare in particular is riddled with incentives to cheat. It needs fundamental changes, not vouchers. It can be fixed by adopting proven best practices in other similar health care systems across the globe. Get to work.

And America, you don’t get off scot-free either. You are a mess and you need to shape up. Seniors, since you are on Medicare, you need to get annual physicals and follow your primary care physician’s guidance because in general you weigh too much, eat the wrong crap and don’t exercise, and this is costing the nation a fortune in outpatient and hospital care. If you miss the benchmarks in your physician’s action plan, you must pay a premium because it is people like you, being either stupid, or oblivious, who are driving up costs. You’re old enough to know that life is not free. If you want health care in retirement, you must do your part to restrain costs.

Doctors, you don’t get exempted either. You have to practice better medicine and work more efficiently. You have to stop billing for all these unnecessary tests and submit bills only when you have achieved an effective outcome. Yes, I know many of you are still paying off your loans from medical school. Deal with it. You have plenty of company.

Here’s some of our new rules of governing:

  • Unless you are severely disabled or destitute, you must contribute part of your income to the betterment of society. That means you must pay some percentage of your income in taxes.
  • Every single program in the federal government must meet goals written into its legislation and terminate after five years if they have not achieved those goals. We will empower the Government Accountability Office to find out whether the goals were met for the agreed upon budget. If it’s not working as planned and for the agreed upon cost, it’s gone. No more open-ended legislation is allowed. There must be a funding mechanism attached to all new spending, and it must be certified as reasonable by the Congressional Budget Office before it can be accepted as legislation.
  • We will borrow money to pay for war only, but we will also make it part of the Department of Defense’s mission to avoid wars in the first place. The agency will work intimately with the Department of State to ensure we avoid as many wars as possible. Wars are costly. Our military plans must include plans to limit the scope of a war as tightly as possible, and withdraw our forces as fast as possible.
  • Once we achieve a balanced budget, at least five percent of revenues annually will be dedicated to paying down our budget deficit.
  • We will not be afraid to raise taxes when needed. We need to repair the bridges and highways we got that are crumbling. Transportation taxes must be raised. Coincidentally, we will stimulate the economy and the middle class in a major way. This probably means increasing the federal tax on gas to at least fifty cents a gallon. Yes, it will hurt in the short term but it’s money that will be spent right here in America and will encourage more fuel efficient transportation.
  • No more partisan nonsense is allowed. Taxes are not evil. They are the cost of civilization. People who can afford to pay more should, because their wealth is due largely to those lower than them on the income scale.

I believe that this is what we need to make our country great again. President Obama, I hope you are listening.

Playing Public Debt Poker

Predictably, Republicans walked away yesterday from negotiations on extending the federal debt ceiling. It was predictable but it was also childish. Led by House Majority Leader Eric Cantor, Republicans attending the talks led by Vice President Joe Biden said there was no point in continuing negotiations unless all tax increases were taken off the table.

Essentially, Republicans at the talks no longer believe in negotiations. By definition, when parties are negotiate each side has to compromise. In negotiation, no side gets to have it completely their way, particularly when Republicans control only one house of Congress. Republicans do not want negotiations; instead, they putting all their chips on the capitulation square.

That’s sticking to principle, but it’s not going over well with voters. Voters are completely comfortable with tax increases as part of reducing the deficit, particularly on the well off. Naturally, Republicans contend otherwise, although numerous polls contradict them. The only poll that seems to matter to Republicans are surveys of other Republicans. The rest of us are, after all, something lesser. We are those little people that the late Leona Helmsley despised. Yet voters, like Republicans, also suffer from cognitive dissonance. A majority of voters also do not favor extending the federal debt ceiling, so in that sense Republicans are following the will of the people. Voters also want to keep Medicare in its current form. Voters, like Republicans, want to have it both ways.

Only of course you can’t have it both ways. Our debt problem is a direct result of decades of doing just this. Republicans at least realize that if you cannot raise taxes then to reduce the deficit significantly you have to butcher entitlements like Medicare. If they succeed in their plan, then they guarantee their own political irrelevance in the next election. What is needed is some give and take. What is needed, frankly, is something rarely seen in Washington of late: statesmanship.

Statesmanship means looking out for the good of the nation as a whole instead of just your own partisan interests. It means that to achieve a larger goal, everyone has to make sacrifices. So far Democrats have given a lot, and have largely conceded on the point that expenditures need to go down to balance the budget. Now is time for Republicans to show some statesmanship as well and agree that at least some taxes need to be raised. Some of it can be done by removing subsidies, which, contrary to the opinions of Grover Norquist are not tax increases. In any event, when you have a budget deficit as large as we have now and have divided government, it cannot be fixed instantly. It happens slowly and incrementally. It’s very much like trying to instantly turn an aircraft carrier. You can’t turn one of them on a dime.

The federal government, for better or worse, is a huge institution and an economic machine with intricate ties into our economy. Defaulting on our debt would exacerbate our problems. It would make borrowing money more expensive. If we needed to fight another war, no matter how noble, and needed to borrow money to wage it, if we default we might not be able to do so. No one knows exactly what would happen if we did in fact default but almost everyone agrees it would be very bad. Some Republicans live in La-La Land, and think a short-term default would have no negative consequences but would give way for capitulation to their demands. If default happens, it is likely to be calamitous to economies and markets not just in the United States, but also across the world. Default is also the greatest way to ensure the irrelevance of the Republican Party. If they are seen in retrospect as responsible for default, a new depression is no way to garner political capital.

It may not be convenient and it may be politically painful, but this problem will resolve itself not through capitulation but only through negotiation. Where to go from here? Eric Cantor suggested that the big boys need to step up: President Obama, Speaker Boehner and Senate Majority Leader Reed have to cut a deal and try to sell it.

To make the deal though will take some external actors as well as some smart tactics. Thankfully, the external actors are already nervous. Bond rating firms are threatening to lower our nation’s bond ratings if an agreement is not in place by early July. This means fewer will want to lend to us, and those that do will demand higher interest rates. The biggest stick out there is probably the U.S. Chamber of Commerce, which has threatened to work against Republicans who refuse to extend the debt ceiling. Generally, only big business gets the undivided attention of Republicans.

Lastly, it’s time for the President to make an aggressive case to voters. Thus far he has been under the radar on the issue. It would involve not just Oval Office speeches, but going on the road, outlining the scope of the problem, making the case for tax increases as part of a solution, and noting that deep cuts have already been agreed to. He needs to use the power of his office to peel off just enough nervous Republicans to make a deal happen. He needs to paint a potential doomsday scenario if default occurs, and bring with him noted and credible authorities, like the president of the U.S. Chamber of Commerce and the Chairman of the Federal Reserve. There are still no guarantees, as Republicans are obviously not playing with a full deck. But it might work. If it doesn’t, it will be clear which party was not interested in negotiation, but only in capitulation.

To most Americans, the debt ceiling is abstract. They are against debt in general, but have little idea that not raising the debt ceiling means defaulting on our debt. They do understand the importance of having a job, so it will be important to make the link between a default and an economy that could tailspin.

The most likely outcome will be last minute incremental extensions to the debt ceiling without real political accommodation, simply dragging on political paralysis. The economy is faltering for many reasons, but given the huge effect of the federal government on the economy, what is really making everyone nervous is that Washington’s deeply partisan politicians simply refuse to give and take. Business likes predictability in affairs, and unless there is bipartisan plan forward, there will be none.