I Thought We Didn’t Negotiate With Terrorists?

“The Debt Ceiling is the only leverage the GOP has to get some spending cuts.”

Debate from my previous post, What Republicans Want… I Don’t Know, prompted a commenter to write that sentence. The sentence, although not filled with heated rhetoric or vitriol, encapsulates the dysfunction within the Republican Party and our current political system.

Before I get to why, a little lesson on the debt ceiling is needed. The debt ceiling is an artificial problem with profoundly real consequences. Each year, Congress passes laws concerning taxation levels and spending programs. If spending is greater than the tax revenue brought in then the government has to borrow money to make up the difference. That borrowing, is “raising the debt ceiling.” The money has already been spent, but needs to be paid back. This is important to understand. By not raising the debt ceiling the government is not saving money or acting fiscally responsible; it is simply not paying its bills. Which by the way is against the law.

In effect, Congress is fighting with itself; arguing about paying for programs already passed as law. Republicans can talk all they want about spending cuts, but that is not related to the debt ceiling. Once again, it is money already spent. Republicans are simply using the debt ceiling as a bargaining tool to get what they want. As I said, it’s an artificial problem. Raising the debt ceiling will not make us worse off or increase our debt. Congress agreed to a certain amount of spending, they spent that money, and now Republicans don’t want to pay it back.

Although this is a fabricated problem by Republicans; the consequences of their threats are all too real. If the U.S. government defaults on its debt it would wreak havoc on still fragile financial markets as well as hurt our standing on the world stage. If that seems too abstract, the Washington Post’s Ezra Klein puts it in very real terms:

” The FBI will shut down. The people responsible for tracking down loose nukes will lose their jobs. The prisons won’t operate. The biomedical researchers won’t be funded. The court system will close its doors. The tax refunds won’t go out. The Federal Aviation Administration will go offline. The parks will close. Food safety inspections will cease.”

The debt ceiling is not just government jargon, economic fuddling, or accounting trickery; it is very real, and the effects of not raising the debt ceiling will be felt very quickly. Which brings me back to this sentence: “The Debt Ceiling is the only leverage the GOP has to get some spending cuts.”

The debt ceiling debate, the one manufactured by Republicans that would cause devastation and hardship, is a game for conservatives; something they can use as leverage. Republicans are willing to devastate the economy in order to don’t get what they want. That is not how governance in this country works; we do not govern via a system of threats and hostage negations, well, not until now. Republicans are strapping a bomb to themselves, threatening to detonate it unless their spending cuts (demands) are met.

holding americans hostage

The GOP realizes this is the only way to pass their out of touch and unpopular agenda. And here lies the problem with our political system. One Party, one crazy enough to default on our debt, is wielding control through unprecedented governing and threats of economic collapse. A successful two-party system necessitates compromise with both sides willing to give; obviously, this isn’t happening. Republicans have decided to forgo normal negations for one with which they use the health of the economy as a bargaining chip.

Instead of addressing real problems like high unemployment or a warming planet we are debating whether or not to pay our bills. And the GOP thinks this is totally fine. As my one commenter said it’s the GOP’s only leverage to cut spending. It’s sad we are dealing with threats from inside our own government. It’s sad Republicans think our economic and financial stability is all just a game. And it’s sad the Grand Old Party thinks it’s just fine to hold the wellbeing of our country hostage to get what it wants.


Construction is the Achilles’ Heel of this Recovery

I posted yesterday about the most recent jobs report.  Overall the report was good news for the country. Most sectors of the economy saw increased job growth like that of manufacturing, however; job growth in construction declined by 13,000.

I have recently been saying (here and here) government investment and consumption, and not tax cuts can spur economic growth. Even though we know investment boosts the economy, Washington has decided to cut government investment; so is it really any surprise we are losing construction jobs.  Construction is an area of the economy where government can easily boost job growth.  Public works programs would lead directly to an increase in jobs in the construction sector of the economy.  Another stimulus package directed towards increased construction on things like infrastructure would provide a substantial boost to this economy.

This will not happen though.  We currently have one party in Congress who believes reducing the national debt should take precedent over recovering from the worst recession since the Great Depression.  We have one party in Congress who believes any government investment is one step closer to socialism. And we have one party in Congress who believes we can solve every problem with a reduction in taxes.  Because of this one party the possibility of another government stimulus plan to increase growth in a declining sector of the economy, namely that of construction, is off the table. The country seems so close to really turning this economy around, and it is a shame Congress is not considering every option.

Finally Congress Got it Right

Although not official, it is looking like Congress is going to extend the payroll tax cut.  The fact it’s going to pass is not all that surprising, but how it’s going to pass is surprising.  Unlike every other Congressional decision this one was not made at the last minute and it was done with little to no controversy. It seems Congress, particularly House Republicans, learned their lesson from December when they took the decision to extend the payroll tax cut down to the wire. Ezra Klein argues this sudden change of strategy by the GOP is due to the President’s increasing approval rating and the better-than-expected economic numbers.  Mr. Klein believes the lack luster Republican field has made top Republican leaders begin to re-think their political futures. Republican leaders are recognizing the country is more in agreement with the Democrats than themselves.

This is also evident in the payroll tax cut extension being passed without it being paid for.  The once Republican deficit hawks would have never let this tax cut pass without it being funded or requiring some other political gain.  They have come to realize the majority of the country is not as concerned with the national debt as they are.  Republicans wanted the national debt to be the central issue of this election, but they failed to understand the average person cares more about having a job than paying down the debt.  We once again see the tide shifting towards the Democrats.

Also, economically speaking a paid-for-tax-cut has no effect on the economy.  It is robbing Peter to pay Paul with the end result being zero increase in aggregate demand.  This is something Republicans either failed to understand or to admit.

Congress seems to have finally gotten it right.  Specifically, Republicans have got it right that fighting the payroll tax cut extension is not a popular stance.  And Congress got it right that during times of recession it is not necessary to pay for a tax cut.  This extension will not only benefit the average American, but it is sign of what’s to come in November.