Debt Ceiling: All Pain and No Gain For Democrats

As has been the case with every legislative battle since the end of the Clinton administration, the Republicans have absolutely steamrolled Democrats on this debt ceiling increase. Obama once again assumed a braindead negotiating posture when he should have held firm on a clean debt ceiling vote, not allowing Republicans to hold this routine piece of Congressional bookkeeping hostage. Predictably it devolved from there to the point where Republicans managed to get Democrats to agree to deeper cuts than even the Republicans were demanding at the beginning of the year without any new revenues. The biggest problem with our budget deficit is that revenues have sunk to a 60-year low 14% of GDP, yet we will almost definitely not get a penny more of it in exchange for huge budget cuts. Only Democrats could negotiate a deal that bad.

So basically, the fight was lost a couple of weeks ago, indeed a few months ago if you go back to when the seeds of pending defeat were first planted. There's still plenty of room for Democrats to come out of this even worse than is currently expected, but even the best-case scenario is not gonna be pretty. As much as Democrats like to think they've exposed the intransigence and all-out insanity of the Tea Party refusing to vote with their own party's plan and pushing the country this close to brink of a crisis of choice, the narrative will be short-lived.

If the crisis is not averted, which I believe is still 40% likely, initial outrage may fall on Republicans, albeit much more narrowly than expected, but voters will be angry at everybody in Washington who oversaw this epic failure of the federal government to do its most basic functions....a narrative parroted by a press corps petrified by accusations of bias from the far right and thus finding a way to blame both sides equally. Even outside of that, Democrats are the incumbent party in two or three elected governing bodies, so they have the most to lose in the next election as a matter of pure arithmetic.

If the crisis is averted, Democrats believe they'll be seen as the adults in the room. That storyline may hold initially but will have as much staying power in the court of public opinion as Obama's post-Osama bin Laden bump. The policies of the Republican Party tanked America's economy in the fall of 2008, yet the voting public has such a low attention span that only two years later they rehired them en masse. With that in mind, there's no way that voters will still be thinking about the immaturity of the Congressional Republicans in the July 2011 debt ceiling debate by the fall of 2012, especially since we may well be in a double dip recession by then.

Furthermore, if the should-be discredited credit rating agencies choose to downgrade our credit even after the passage of a debt ceiling increase next week, which is more likely than not, any upside from passing the debt ceiling increase in the first place will be negated. One could envision a scenario where Republicans are able to convince the public that they were right to oppose the debt ceiling increase in the first place...the same way they've convinced the public that TARP, the stimulus, and the auto bailout were bad ideas and a waste of money despite all expert opinion to the contrary.

Ironically, the one way I could see Democrats benefiting politically from the debt ceiling issue is the one thing Obama and Democrats are ruling out as completely unacceptable....a six-month debt limit extension that would reignite the debate again. That's not to say I'd want to see the country put through this nightmare again, and it is almost certainly stalling any would-be recovery as is, but from a pure political standpoint, reminding the country of the GOP's petulance, gamesmanship, and cynicism every few months is the only way Democrats have a chance of the message sticking in the thick skulls of American voters. Once again, the Democrats find themselves with no good options.

Mr. President, you should have stuck to your guns on the clean debt ceiling increase six months ago....and at least remind Congress they still have that option on the table now.

Why Does Everybody Assume Long-Range Economic Growth?

A lot of "really smart people" from both sides of the political spectrum (and the middle) all seem to be afflicted with the same irrational exuberance on one issue and fashion their policy platforms with it mind....that the sluggish economic growth we've been experiencing for nearly four years now is on the cusp of a sharp turnaround. It might not happen today or tomorrow, but it's coming soon. It's gotta be! Everybody in the Obama administration has clung to this article of faith going back to the early days of his Presidency, and Republicans always insist that the economy won't get any better so long as Obama's policies are in place, but maintain the same overall perspective as the Democrats...that all we need is their preferred policies to take effect and the economy will instantly snap back to whatever passes as economic glory days in recent American history. Perhaps this is just the nature of people who go into public service--an unflinching optimism even when there's absolutely nothing to be optimistic about--but I can't get over how nobody has come to terms with the likelihood that the economy of 2010 and 2011 is America's new normal.

The general nature of financial crises throughout American and global history has suggested the initial plunge is fast and deep, and the recovery process is slow and bumpy with an endless litany of false starts. This particular financial crisis, where trillions of dollars of artificial wealth was created and wiped out, devaluing homes and bankrupting consumers who borrowed against those homes, reeked from the get-go as being the instigator of a downward economic trajectory for the nation. Add to the already grim arrangement described decades worth of incentives for would-be job creators to do business overseas and the surge in unemployment was assured of being brutal and permanent. With the nature of the jobs lost, most of those who lost their jobs will never work again. Even after the comparatively mild 2001 recession, getting back on our feet took the entire first term of Bush's Presidency, and even when we found our footing it was merely fueled by a phony housing bubble. So why did anybody think back in 2009 that we'd be anywhere other than where we are right now 2 1/2 years later?

The lackluster growth was certainly not foreseen by the administration's would-be economic wizards Larry Summers and Christina Romer, who predicted the too-stingy stimulus package would hold unemployment below 8%. And they continue to be shocked at the lack of job growth and stalled consumer demand with each abysmal new monthly report. Worse yet, they support backloaded deficit-reduction packages, insisting the current fragile recovery can't sustain deep and immediate cuts (which is true) but apparently believing that in a couple short years the economy will be humming along to the point that it can absorb steep budget cuts. But why would it be?

They're stuck in the mindset that the old rules of the business cycle apply, where must goes down must go back up. But in an economy that has forfeited its industrial base (the sectors of the economy that are most traditionally affected by the business cycle) and is now driven entirely by the finance sector and binge consumerism by an emaciated peasantry, there's little indication that the business cycle will create jobs of any kind. Should some magical rebound in consumer confidence arise, even that won't bring back the jobs lost during the economic crisis....jobs disproportionately held by blue collar workers who are not likely to ever be employed again given their age and skill set.

But as usual, as deranged as the Democrats are on the economy, the increasingly unhinged Republican/Tea Party is orders of magnitude worse. The same party that is two weeks away from testing the theory that defaulting on our debt will bring about economic calamity is proposing as a remedy for frozen consumer confidence, among other things, the evisceration of Medicare and cutting unemployment benefits. In their worldview, the only thing stopping blistering 1950s style economic growth is a business community already sitting on $2 trillion in idle cash is funneling even more public resources their way. Even though consumers are flat on their backs with debt, all it will take is more giveaways to corporations and they'll magically hire more people to produce goods and services that the public is too bankrupt to afford.

Never has it occurred to them that they might get their hat trick in November 2012, with a President Michele Bachmann and Republican majorities in the House and Senate, yet still see economic growth of 1% or less in 2013 and 2014, after they've gutted the safety net, voucherized Medicare, and handed over Social Security to Goldman Sachs and AIG. Yet that's the almost certain outcome with a consumer base even more starved than it is today.

The fall of the American economic empire started at some point in the 1970s and really took shape in the 1980s when a production-based economy gave way to a finance economy, fueled by the transition from traditional pensions to 401Ks where every Joe Sixpack became an "investor" and every young hotshot with a Harvard business degree was licking his chops waiting to take advantage of the new "investors" ignorance. Once America codified through the trade agreements a laundry list of incentives to not operate manufacturing facilities on America soil in the 1990s, we sealed our fate. Now, in the year 2011, we're an exhausted economy that has sold its treasure and is left with a workforce that the world economy has no use for. There's only one way the American economy comes back in the foreseeable future, and unfortunately that is through another bubble blown by Wall Street's three-card monte machine. Backload spending cuts all you want....but they're gonna just as devastating to the sluggish economy of 2016 or 2021 as they would be for the sluggish economy of 2011. Why on Earth do the people who run our government, even the shrinking numbers of whom mean well, fail to see that?