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The US Government Is Not Broke

6 October 2013

The US Government Is Not Broke

By Gwynne Dyer

A salient feature of American “exceptionalism” is the belief that the United States can never be ordinary. If it is not the best, then it must be the worst. If it is not destined to dominate the world forever, then it is doomed to decline and decay.

This kind of thinking explains why much of the commentary in the United States about the recent “shut-down” of the US government, and also about the impending default on the national debt (due on 17 October), has started at hysterical and quickly geared up to apocalyptic. We Americans have lost the mandate of Heaven, and it will soon be raining frogs and blood.

So everybody take your tranquiliser of choice (mine’s a double scotch), and let’s consider what is actually going on here. The United States is the world’s oldest democratic country, with an 18th-century constitution that is bound to be an awkward fit for 21st-century politics. But that hasn’t stopped the United States from becoming the world’s biggest economy and its greatest power. Has something now gone fundamentally wrong?

The problem lies in Congress, specifically in the House of Representatives, where the Republican majority is refusing to pass the budget, and threatening not to raise the official debt ceiling either, unless President Barack Obama postpones the implementation of his bill extending medical care to all Americans.

The Affordable Care Act was passed by both houses of Congress and signed into law by Obama almost four years ago. Last year it passed scrutiny by the Supreme Court, and was subsequently welcomed by a majority of the voters in the presidential election, so Obama is understandably refusing to yield to blackmail. But the House Republicans seem mysteriously unworried by the fact that the public blames them for the impending train wreck. Why?

Because 80 percent of the Republicans in the House of Representatives don’t have to worry about what the general public thinks. They represent Congressional districts that have been so shamelessly gerrymandered by state legislatures that it is almost impossible for anybody who is a Republican to lose an election there. National public opinion is no threat to them, whereas the views of their extremist Tea Party colleagues are a potentially lethal danger.

You can’t gerrymander the Senate; every senator’s “district” is the entire state he or she represents. State legislatures controlled by the Democrats also gerrymander congressional districts to create safe seats for their own party, but there is no organised extremist group in the Democratic Party that will try to destroy elected members of their own party who do not toe the ideological line. Whereas in the Republican Party, there is.

Republicans seeking reelection to the House of Representatives may not have to worry about their Democratic opponents, but they certainly have to fear the Tea Party. If it decides to mount a challenge to an incumbent in the Republican primary elections, the far-right challenger will be lavishly funded by the Tea Party’s wealthy supporters, and that may mark the end of the incumbent’s political career.

So the Republicans in the House of Representatives, even those generally open to compromise, are keeping their heads down for fear of angering the Tea Party. That means it is possible (though not probable) that the October 17th deadline will be missed, and the US government will be forced to default on its debt. How bad would that be?

Very bad, according to a US Treasury spokesperson. “Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world.” And it might rain frogs and blood.

Or maybe not. There would certainly be turmoil in the markets: many people would lose money, and some would gain. But it would not be a repeat of the crash of 2009, when it was suddenly understood that huge amounts of the mortgage debt held by banks could never be repaid. The US government can still pay its debts; it just has to get Congress’s permission first. And the markets, while prone to panic, are not completely stupid.

 

Nor is the US Constitution fundamentally broken. It always requires a fair degree of compromise between the various branches of the government in order to work smoothly, and at most times in history that cooperation has been forthcoming. The current paralysis is due mainly to the gerrymandering of Congressional districts that makes members of the House of Representatives less afraid of public opinion than of the views of their own party’s hard-liners.

It wouldn’t hurt to put some controls on election spending as well, so that rich ideologues had less influence over the political process. But that is merely desirable; ending the gerrymandering is absolutely essential. It will take time, but this is a problem that can be fixed. And in the meantime, the US government is not really going broke.

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To shorten to 725 words, omit paragraph 7. (“You can’t…there is”)

 

 

The US Debt Deal

30 July 2011

The US Debt Deal

By Gwynne Dyer

 Nobel Prize-winning economist Paul Krugman nailed it right away: “Basically the Republicans [said] we’ll blow up the world economy unless you give us exactly what we want, and the president said, ok. That’s what happened.”

The fine print of the last-minute deal between US President Barack Obama and the speaker of the US House of Representatives, Republican majority leader John Boehner, hardly matters. There will be cuts in government spending, or rather in the rate at which government spending was projected to rise, but the big thing is: there will be no tax increase.

That is pretty bizarre in a country with a huge budget deficit and the lowest tax rate in fifty years. The normal response would be to cut spending AND raise taxes. Even the Conservative-led coalition government in the United Kingdom, the poster boy for savage budget-cutting, has done that. But not the United States.

True, the deal has averted the imminent prospect of a default on the US government’s debts, which was allegedly going to happen this week unless Congress voted to raise the legal limit on government borrowing (currently $14.3 trillion). On the other hand, the main anticipated penalty for a default, the loss of the US government’s AAA credit rating, may happen anyway, with a consequent rise in the interest rates paid by all Americans.

One could go on like this, discussing how the spending cuts will slow the already faltering US recovery from the recession and keep the unemployment rate very high (over 9 percent), but that is not really the point. It is that the Republicans have discovered a weapon, never envisaged by the constitution, that enables them to force the executive branch to submit on any issue whatever. Just refuse to raise the debt limit.

The weapon has been lying around since 1940, when the original law requiring Congressional authorisation for any increase in the national debt was passed, but it has never before been used as a weapon. Some clever politicians must have seen its potential in every decade since, but in more responsible times it was seen as illegitimate to employ such a threat to force the executive branch to submit.

Indeed, Congress has voted to raise the debt limit 106 times since 1940, without ever trying to use it as a lever to bring the presidency to heel on other issues. But it is an immensely powerful weapon, particularly as the user does not even need to control both Houses of Congress. Since both Houses must approve the legislation, only one can block it.

It’s not clear whether the radical Tea Party faction in the Republican Party originally came up with the idea of refusing to raise the debt limit until the White House accepted its terms, but they certainly made the running after the Republican Congressional caucus adopted the strategy.

It was the Tea Party that forced John Boehner to drop the idea of agreeing to some tax increases alongside massive cuts in spending in order to bring the budget deficit under control. He is a fiscal conservative, but a sensible politician who understands that in any negotiation there has to be some give and take. The Tea Partiers just wanted take and no give, and they forced him to shift his position.

Then they got greedier, and several times made Boehner demand even more concessions from the White House, presumably in the hope of making the deal so unpalatable that Obama would reject it and allow the country to default. They were certainly ready to accept a default as the lesser evil, since they believed that the immense economic damage it caused would ultimately be blamed on Obama, and cause him to lose the 2012 election.

It must be acknowledged that Obama played his hand extraordinarily badly in all this. As one blogger put it, “Just let me get into a no-limits poker game with him. I’ll walk away a millionaire.”

It should also be recognised that Boehner was quite happy to let the ideological loonies on the far right of his party serve as an excuse for his obdurate stance in the negotiations with Obama. It worked a treat, and Obama basically gave him what he wanted. Or, to be more precise, everything that the mainstream Republicans wanted, although not everything that the Tea Partiers were demanding.

The implications were quite clear in the House vote on the debt limit deal on Monday. 174 Republican voted for the deal, while only 66 (almost all from the Tea Party) opposed it. But the Democrats, outraged by how the cuts that Obama has agreed to (with no new taxes on the rich) will hurt poorer Americans, split right down the middle: 95 for the deal, and 95 against it.

It begins to look possible that Obama could lose the 2012 election. He may even face a battle to be re-nominated.

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To shorten to 725 words, omit paragraph 6. (“The weapon…submit”)

The US Debt Crisis

30 July 2011

The US Debt Crisis

By Gwynne Dyer

By the time you read this, you will probably know whether the United States is going to default on its debts this week, or not for another ten to twelve months. Unless there is a deal by Tuesday, the US government runs out of cash right away. But either way, American politics is becoming utterly dysfunctional.

“The biggest threat to the world financial system comes from a few right-wing nutters in the American Congress,” said Vince Cable, Business Secretary in Britain’s Conservative-led coalition government. Fair enough, but the true believers of the Tea Party, which controls a large fraction of the Republican Party’s seats in Congress, haven’t the slightest interest in the world financial system.

“It’s like a form of economic terrorism,” Wall Street financier Steve Rattner told the British Broadcasting Corporation. “These Tea Party guys are like strapped with dynamite standing in the middle of Times Square at rush hour and saying either you do it my way or we are going to blow you up, ourselves up and the whole country with us.” But that’s not what they intend. They just want to blow up Barack Obama.

The permissible limit on US government debt, currently set at $14.3 trillion, has been raised by Congress 106 times since 1940, including 18 times during the presidency of Republican saint Ronald Reagan. It normally goes through without debate, almost unnoticed.

The Republican decision to withhold agreement this time is rooted in the Tea Party’s 19th-century belief that the only appropriate response to a financial crisis is to cut spending and balance the budget. But most Republicans have heard of John Maynard Keynes and learned the lessons of the Great Depression; it’s more than fifty years since the mainstream Republican Party preached that all government spending was sin.

When the 2008 financial crisis hit, President George W Bush (“This sucker’s going down”) did what he had to do to ward off a second Great Depression: spend huge amounts of money to keep the economy turning over and to bail out financial institutions that were “too big to fail.” Barack Obama did the same, but he may pay a high price for it.

For Republican strategists, the attraction of a crisis over the US government deficit is that it could sabotage Obama’s re-election bid in 2012. With Republicans controlling the lower house of Congress, raising taxes on the rich and on corporations is out of the question. The deficit can only be cut by raising the taxes and cutting the benefits of the poor. So withhold permission to raise the debt limit until Obama agrees to attack his own key constituency.

That was doubtless the original idea, but then the Tea Party faction took the bit between its teeth.

First they forced John Boehner, the Speaker (Republican majority leader) in the House of Representatives, to drop his plan for $3 trillion cuts in government spending over the next ten years. Instead, insurgent Tea Party members of his own caucus made him adopt a two-stage approach mandating only $1.3 trillion in cuts now, with more to follow later.

Under the Tea Party plan, Congress would also authorise only a small increase in the debt ceiling now, so that Obama would have to come back and ask for another increase in mid-2012. It is a ploy intended to prolong the political crisis into next year and make the budget deficit the sole focus of attention during the election campaign.

Then, when Boehner was trying to get that amended plan through the House of Representatives last week, the Tea Party members threatened to vote against it unless they got further concessions from him. The second-stage negotiations in mid-2012 could not even start unless Congress also began work on a new constitutional amendment that would oblige the federal government to balance its budget every year, forever.

Obama could thwart that strategy if he could reach a compromise deal with the mainstream Republican leadership in Congress, which is why the Tea Party has worked so hard to radicalise the Republican position. It doesn’t want a deal because it believes that if the US government cannot pay its employees or send out social security cheques, the victims will not be interested in the political details. Obama’s in charge, so it’s his fault.

That may be true, but the collateral damage would be extreme. About 40 percent of US federal government spending would stop at once (ongoing tax revenues would cover the rest), and millions of people who work for the government or depend on social security payments, veterans’ benefits and the like would suddenly have no income.

The US government would almost certainly lose its AAA credit rating, so interest rates would rise not just for government debt but for every mortgage and personal loan in the country. The US would tumble back into recession, and the rest of the world would probably be dragged in behind it.

Still, if you don’t believe that anything good can happen in the United States until that usurper Obama is driven from office, and you don’t care what happens to poor Americans and to foreigners, it’s a pretty good strategy.

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To shorten to 725 words, omit paragraphs 3 and 11. (“It’s…Obama”; and “Then…forever”)