Obama: Debt, Default and Betrayal
Last week Sunny told us that he was frustrated with people like Glenn Greenwald who think Obama is giving away too much in the current negotiations over the US debt ceiling. He thinks that Republicans are in a bind “if they agree to increase taxes, they break their own pledges and annoy the hell out of their base. If they don’t – they lose independent voters.” and that Obama has “[r]ather than betray[ed] the left … nearly pulled off a master-stroke at a time his hands are badly tied.”
In reality this is just the latest in a line of betrayals of the left from Obama. ‘Win’ or ‘lose’ this fight over the debt ceiling Obama’s (and, to be fair, other Democratic leaders’) action has served only to move the debate to the right and make cuts to essential services more likely. As Digby says
by putting these drastic cuts on the table they are going to become the centrist and conservative baseline going forward. After all, “even the liberal Democrat Barack Obama thought this needed to be done.” I had not heard anything about raising the age of Medicare eligibility before this debate and now it’s everywhere, pushed by the White House and by the health care technocrats who think that everyone should be thrilled to get into the untested Rube Goldberg health care program as soon as they can buy their way in.(If they can afford it.)
Even the usually reliable Paul Mason was reporting on newsnight two days ago that the stimulus had failed and that cuts were now necessary. That the stimulus failed is, in my view, debatable in itself—it’s hard to prove any counterfactual, but the situation in the US could have been even worse if austerity had come earlier—but that it was less successful than many hoped is due to a lack of ambition, not too much. The stimulus that happened was too small, too slow to reach the real economy and badly focussed—too much of it came in the form of tax cuts and too little in job creation programmes and infrastructure.
But, maybe I’m being too harsh here. As Sunny says, Obama’s hands are tied, aren’t they? The Republicans are dominated by the Tea Party and prepared to do anything to hurt the Democrats, they’re threatening to let the country default; he’s been forced into this position.
Except, that he hasn’t. If he wanted to raise the debt ceiling he could. And, in fact, he will, whatever efforts to agree a deal on the deficit come to. The Republican party may have its share of “rightwing nutters“, but its leadership aren’t crazy enough to let the whole economy collapse, to force another credit event, potentially worse than Lehman and with no possibility, this time, of a bailout. When the US Chamber of Commerce says
failure to raise the debt ceiling would have calamitous results. It would halt government operations, make our debt and deficit situation worse, debase the value of the dollar and threaten its status as the world’s reserve currency, and hamper U.S. growth and job creation…
…jeopardizing our country’s credit rating and fiscal security by refusing to compromise isn’t the answer.
you can be pretty sure there’s a significant degree of pressure being put on Republican congressmen and women to be sensible, just this once. In fact, there are already public reports of that happening.
And even if the Republicans were just crazy enough to try blocking a clean bill to raise the ceiling, Obama has other options. Section 4 of the 14th Amendment states
The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Though originally drafted to refer to civil war debts, the supreme court has noted that the section applies more broadly. And that isn’t even the only option he has to unilaterally raise the ceiling, or in other ways bypass it.
The truth is, if the Democrats simply wanted to deal with the immediate debt ceiling issue, they could do so. They have the ability, they have the ability many times over. But what they want is to make a deal to reduce the deficit. And they want to use the issue of the debt ceiling to do so—as do the Republicans, of course. In order to remove the issue from next year’s elections and absolve themselves of responsibility, for their own short term political gain, they’re prepared to balance the budget on the backs of ordinary working Americans, to put at risk programmes they promised not to touch, to once more sell out the left and allow the political debate in the US to shift to the right. How anyone who considers themselves on the left can still support them astounds me.
Yup – Bill Clinton has been making it pretty clear that he would raise the debt ceiling unilaterally:
presumably partly to soften the skids if Obama does so.
On the politics game, I’d say 2 things. First, the damage Obama would suffer from a few constitutional liberals would be nothing to the damage if he allows cuts which will risk the American economy to go through. He’s far enough from an election that these could really start to hit by the time he’s facing the voters. The combination of lower benefits and higher unemployment would surely do more damage than the fact that 18 months before the election he may or may not, depending on how you interpret the constitution, have over-reached a power that most people don’t understand.
There’s another way of looking at this, which is that the whole debt/ debt ceiling/ deficit debate is nonsensical, a mirage intended to distract us from the real issue.
The real issue is first that the measures proposed as a response to this “crisis”, in the US as in the UK as in Greece, Spain etc, are aimed at transferring resources and power from poorer to richer; and second that the economic rationale for doing so is lacking in either rigour or empirical verification, but politicians of all mainstream parties, like Obama, continue to recite their lines, and the media echo the dirge, so that alternative voices are drowned out.
The crisis, of course, is an invented idea aimed at suppressing dissent. The truth is that government debt is nowhere near a historic high, private debt is the problem (but since “growth” is predicated on increasing private debt instead of actual production or efficiency, best not mention that), the deficit is a good not a bad thing, and most economics writers couldn’t find their bum in the dark using both hands.
Bill Mitchell gives an alternative perspective, one not subsumed in orthodox bullshit. http://bilbo.economicoutlook.net/blog/?p=15394
Obama may be able to raise the debt ceiling unilaterally, but there would still be consequences. Republicans and the rightwing media could do a lot of damage with any suggestion that the proper checks and balances had been circumvented. It might mean that Obama has to suffer damage to his career for the greater good, but politicians aren’t usually too keen on doing that.
Except, that he hasn’t. If he wanted to raise the debt ceiling he could.
I may have missed something. What exactly is the legislative route to doing this?
@sunny see the FDL article linked above that details several ways he could raise the debt ceiling without congressional approval – via the federal reserve, the 14th amendment, his authority as president to protect the state (that one seems a little tenuous to me, to be fair) – and, as I believe you yourself noted, the possibility of simply demanding republicans sign a clean bill and daring them to destroy the economy, which they won’t do.
@alyson there would probably be consequences, more for some of the options than others, but I fear they’ve put themselves in this position. Far from playing this well, I think it’s been played very badly from a political point of view, they tried to get a deal they shouldn’t have, and it hasn’t worked. In doing so they’ve made cuts more likely, and probably left themselves in a worse position politically.
If Obama really has a fallback to prevent default then this surely vindicates the Republicans’ position in applying maximum pressure without appearing reckless. Personally I don’t see it, and market nervousness would drive up rates, as well as rating downgrade being a distinct possibility.
At $14Tr the debt would attract an extra $140 Bn interest a year if rates increase by 1%. That would be more than the $1.2 Tr cuts over 10 years being proposed!!