The Debt Ceiling and How To Define Winning

We’re in spin phase. The spin of the House’s debt ceiling vote is almost as bad as the last few weeks of inventing the fake deficit and spending crisis. The moderate to liberal side of the spectrum should not be shocked or angry, and they should not be any more pessimistic than usual. The shoe was going to drop. It dropped and there is some good news and some bad news. I will grant that House Speaker John Boehner(R-OH) really believes what he says. Remember these words. They are the kind of canyon sized gaffes that break politicians and lose elections:

Pelley: You were unable to get your own caucus behind your bill a few days ago. Do you intend to remain Speaker of the House?

Boehner: I do. When you look at this final agreement that we came to with the white House, I got 98 percent of what I wanted. I’m pretty happy.

 

I wrote a post about the political Jiu-Jitsu in play with the budget talks and it worked out exactly that way. President Obama offered up $4 trillion in cuts. Boehner settled for half those cuts. He is happy with what he got. What did he get for the people of Ohio and the rest of the nation? He got an extension of the tax depreciation schedule for corporate jets. He got not reforming the tax code so there would be fewer loopholes. The Congressional Budget Office has the general outline:

What Are the Main Elements of the Legislation?

The legislation would:

Establish caps on discretionary spending through 2021;
Allow for certain amounts of additional spending for “program integrity” initiatives aimed at reducing the amount of improper benefit Payments;
Make changes to the Pell Grant and student loan programs;
Require that the House and the Senate vote on a joint resolution proposing a balanced budget amendment to the Constitution;
Establish a procedure to increase the debt limit by $400 billion initially and procedures that would allow the limit to be raised further in two additional steps, for a cumulative increase of between $2.1 trillion and $2.4 trillion;
Reinstate and modify certain budget process rules;
Create a Congressional Joint Select Committee on Deficit Reduction to propose further deficit reductions, with a stated goal of achieving at least $1.5 trillion in budgetary savings over 10 years; and
Establish automatic procedures for reducing spending by as much as $1.2 trillion if legislation originating with the new joint select committee does not achieve such savings.

Much of the spending is left up to Congress or this special committee. The creation of such a committe will suck down millions all on its own. The debt deal provides for adjustments to the caps in each fiscal year to account for funding designated for emergency requirements and disaster relief and to allow additional funding for “program integrity” initiatives. Program integrity is basically stepped up policing over payments. No one likes someone getting money they are not entitled but this by definition means more of the kind of auditing of individuals that conservatives say is the strong-arm of government. Just another hypocritical bump in the road.

The conservative Mr. Boehner(R-OH) and by and large House teahadists are happy with this deal. That’s good because it is their deal. It is a lot like the Reid plan and Vice president Biden’s plan in terms of dollars, the special committee is an expensive and absurd twist. The promise to put a balanced budget amendment up for a vote is the cheapest kind of window dressing. Such a bill is dead on arrival. Conservatives are happy with it and it is their bill, so that means they own the recession. Conservatives own the anemic growth we can expect and us Keynesian know will occur. Brad Delong is estimating ,”0.4% off of fiscal 2012 real GDP growth, with an unemployment rate in November 2012 0.2% above the baseline.” The original Recovery Act funds will be gone by the end of the year, as will extended unemployment benefits and the Obama payroll tax cut. I thought or rather hoped that Paul Krugman was at least exaggerating a little about the lost decade. The conservative who drove the economy into the ditch just extorted the country into that ditch for another five years ( that is unless Democrats take back the House in 2012 and pick up a few Senate seats – real possibilities as of today).  OK, taking into account that conservatives have intrinsically anti-American priorities they will be able to take credit for reducing the long-term debt, right? Not so much – Could This Deal Raise Budget Deficits?

In fact, this deal could manage to do the exact opposite of what it promises — raise the deficit.

If that happens, it will be because a major determinant of tax revenue is the health of the economy. Profits and growth bring revenues. This could damage the economy enough to send tax receipts down again. Although you never would have guessed it from the rhetoric, tax receipts are at the lowest level in years, as a percentage of gross domestic product. Get a healthy economy and tax revenues rise while a lot of spending, on such things as unemployment benefits, goes away.

As we have seen in Wisconsin, Florida, New Jersey and other states with tea bag governors and at the federal level – austerity, the holy grail of deficit reduction – has resulted in more unemployment ( public sector payrolls can certainly be too big and there are times to cut them. This just is not one of those times). Expect more unemployment. With fewer employed expect fewer tax receipts. Less revenue equals higher deficits. Conservatives, in a mental head lock transfixed by deficit reduction – can only see business leaping on the debt ceiling deal as lifting the ominous cloud of uncertainty that was keeping them from hiring. That is what they said about the Bush tax cuts. We’ve had 6 quarters of renewed cuts and anemic growth in the economy and employment remains statistically unchanged from a year ago. Magic does not work no matter how much conservatives believe in it.

The Economist, not exactly friendly to liberal policies notes, Nuts and bolts

As for long-term fiscal consolidation, the deal also falls short. Total deficit reduction of $2.4 trillion is less than the $4 trillion that bipartisan groups and political leaders had more or less agreed was necessary to put the debt on a meaningful downward path relative to GDP. It’s also the number Standard & Poor’s, a credit rating agency, had suggested was necessary for America to avoid a downgrade to its AAA credit rating. And it’s worth noting that now that GDP has been revised to be smaller than we’d realised, debt is larger as a share of GDP.

The Senate still has to vote on this deal, but let’s assume it passes. The uber conservative Republicans have let the average American hostage go, but they crippled them. Some of that damage is going to haunt them as they struggle to justify why they cut less than the ransom Obama offered, they had to tinker unnecessarily with the details, the Bush tax cuts are still set to expire and the economy is still tanking, but no one can pass a jobs bill because part of the deal entails no new spending. The cherry on top is that the nation’s credit standing may have been damaged enough anyway to the degree that we’re paying more interest on the debt. Everyone knows that states must balance their budgets. Besides some accounting tricks one way they avoid draconian cuts is to go begging to the feds for funds. As of today good luck with that. Expect more cuts – i.e. firefighters, teachers etc to lose their jobs.

Who won this round of stage craft? Depends on how you define winning. We’ve seen what Boehner and House teahadists think is winning. Not much of a win when you add up the numbers. What Republicans and their lamestream media friends won was another round of Framing the Debate. Welcome to the Tea Party’s Austerity Recession

Propaganda Trumps Research

For almost a century, the prevailing economic paradigm has held that when the private sector is in recession, and people aren’t spending money, the public sector needs to step in and act as a “buyer of last resort,” running deficits to keep people working until the economy gets going again. While the fine details of “Keynesian” theory have been the subject of debate, in broad strokes, it remains the thinking shared by most economists across the political spectrum. But even as it remains the dominant economic paradigm, a network of deep-pocketed conservative donors has, to a large degree, successfully discredited that idea in the political realm, replacing it with the simplistic and ahistorical narrative that deficits “destroy jobs.”

As Think Progress reported, “Since the end of the Bush presidency, shadowy right-wing groups, many of them formed for this very purpose, have primed the public with a sophisticated public relations campaign to shift the national discourse to a focus on debt reduction.” That’s resulted in what Washington Post blogger Greg Sargent describes as a “deficit feedback loop,” in which “the relentless bipartisan focus on the deficit convinces voters to be worried about it, which in turn leads lawmakers to spend still more time talking about it and less time talking about the economy.” Sargent highlighted a study released in May by the National Journal confirming his thesis. It found, “a dramatically shifting landscape of coverage over the past two years, as the debate over how to fix the federal deficit has risen to prominence and the question of how to handle still-high unemployment has faded from the media’s consciousness.”

 

As noted in that article, president Obama also bought into the deficits outweigh jobs debate. Politically and publicly that might have been the best thing to do when you see the tide of concern shifting. Democrats have so little of the kind of communications infrastructure to fight the of right-wing disinformation campaigns, tactically it might be best for Democrats to buy into such arguments and try to shape them the best they can. This is something that I have shades of disagreement with some liberals about – the power of the presidential soapbox or bully pulpit. Democratic presidents – with no Rupert Murdoch communications empire behind them, no Koch brothers, no Coors family, no Chamber of Commerce – can only nudge messages a certain way. Too much presidential messaging from a Democrat can even backfire. Until Democrats have the kind and size of the noise machine the Right has they will always be at a great disadvantage in sustaining a message.

I’ll leave on some more semi-good news. About those”triggers” – Five Things for Liberals to Like in the Debt Ceiling Deal

The trigger: This is counterintuitive, but the trigger is actually pretty good for Democrats. For all that MoveOn thinks that it would force benefit cuts to Medicare, Medicaid and Social Security, it actually wouldn’t trigger benefit cuts to any entitlements. The only cuts it would force would be a 2% or more haircut for Medicare providers. And House Minority Leader Nancy Pelosi, along with most Democrats, has never opposed provider cuts. Not only that, most progressives actually want the Pentagon cuts. So if the committee deadlocks and the trigger is pulled, Democrats won’t be miserable.

The commission: Again, for all the liberal carping about a “Super Congress,” the commission of 12 members — three from each party in each chamber — set up to find the second phase of $1.5 trillion in cuts by Thanksgiving is actually rigged to force some revenue increases. Yes, the Bush tax cuts are off the table. But there are plenty of loopholes, subsidies and other corporate welfare programs that are on the table. And with such a strong trigger, it’s hard to imagine at least one Republican not voting to kill corporate jet subsidies over slashing $500 billion from the defense budget – even if the revenues aren’t offset. The question is: who are Republicans more afraid of, Grover Norquist or the joint chiefs? Democrats’ money is on the joint chiefs.

 

OK, think of this as a P.S. One tea smoker put down her bong long enough to see that they didn’t get all the ransom they think they deserved. Ann Barnhardt writing at the right-wing American Thinker – We The Stupid

I stand here in abject stupefaction.  The so-called “right” or “Tea Party” in this republic is being so thoroughly rolled and defeated that I am struggling to come up with an adequate violent submission metaphor that does not involve prison rape . . . and they honesty think that they’re “winning.”  Really?  You call this winning?

She uses some very suspect numbers and suggests that Obama be “removed” from office, but she does get the general drift of some of the cuts, like “not spending” money on Afghanistan being counted as a spending cut.

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