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“Money it’s a crime. Share it fairly, but don’t take a slice of my pie” Pink Floyd

October 10, 2013

One of my blog readers asked me to write about the government shutdown. What is evident upon only a little bit of thought is how irrelevant so far the government shut down and accompanying fight between Rs and Ds is to long-term U.S. fiscal and monetary policy. Yes, the fight is over defunding/ delaying Obama care (and/or eliminating the special exemptions for Congress and their staffs) and this fight is noble in the minds of many conservatives. And yes, Obama care remains generally unpopular with the public and has may flaws which will hurt full-time employment in a number of service industries. And the imposition of Obama care will cost us money as a society – every economic projection including those by the more optimistic CBO has demonstrated that.

But did anyone really believe that providing nearly universal and affordable health care would save us money as a country? ( I never bought into the cost savings claims when the bill was initially passed. “More” of something for more people never costs less!). This isn’t to pass judgement on the merits of providing more coverage. My own view and I suspect that of most Americans (both R and D’s) is that every civilized society needs to make sure ALL people can get at least basic health care coverage. And lets face it, that costs money.

More importantly, is this a threshold issue worth shutting down the government over? My view is this is a terrible mistake on the part of the Republican party in that it is an issue they can’t win on anyway and for which they will take most of the political blame. Most importantly, Obama care is NOT an important enough issue to warrant shutting down the government. However, having said that, most Americans (outside the Washington DC area) are finding that a government shutdown in the short-term ranges from having no impact to being annoying and inconveniencing (e.g. if they planned to visit a National Park). This is because all the essential functions of government (or at least those whose loss would be felt most acutely in the near term) either are not subject to the Congressional funding resolutions (eg. Social Security, Medicare/Medicaid, pensions, food stamps etc.) or have remained funded thru separate legislation (military pay and deployments, national security, etc.). Further, per usual, government employees will very likely get paid while on furlough. (This has happened the last 17 times the government was shutdown and legislation passed the House on Saturday and should eventually pass the Senate too). Of course, a longer government shutdown would have much more widespread impacts particularly on contractors/companies that do much of the government’s work or for necessary permitting and inspections for agricultural products or to commence new projects. However, as of now, nine days into the shutdown, for most people, this is not YET a big deal.

So my biggest frustration with the shutdown is that it is over the WRONG issue. We have a truly threshold fiscal issue in this country which is our enormous spending, debt and related monetary problems. We should start dealing with it NOW because the consequences will be much less painful than if we wait until later. Further, I believe the risk of high inflation, US default, stock market crash, and major economic depression is growing every day we continue adding to $17 trillion debt AND accommodating our debt by printing more than $1 trillion per year. So if it takes shutting the government down for an extended period to really deal with these issues in a very substantial way NOW, then I am completely for it. Of course, I would hope that Congress and the President would be mature enough to at least cut a deal to start this process in earnest. Then again, given what we have seen over the past few weeks, it’s hard to be optimistic.

Lastly, we have the emerging question of the debt ceiling being raised by mid to late October or risk the possibility of default. Here, there has been a lot of hyperbole about the possible effects of failing to do so and the stock markets have been reacting negatively the past few days. However, the President has been disingenuous in describing a failure to raise the debt ceiling in time as akin to US default on its debt and therefore an economic Armageddon. The reality is very different. Unless, the President WANTS to default on interest payments on the debt, he continues to have enough revenue to service the debt and pay a majority of the government bills, although he may have to continue to furlough employees and delay salary and other payments in order to make ends meet. This is obviously NOT a good outcome and will create economic problems of its own (particularly if it lasts awhile), but it is far better than debt payment default which could literally cost the US and the World economy trillions of dollars. The markets are jittery because they see this is a growing possibility, but the chances of this happening are still very remote and solely in the hands of the President if the debt ceiling is not raised by mid October. I believe wholeheartedly that the President and Democrats were more than willing to let the government shut down rather than negotiate away any part of the Affordable Care Act. However, I do NOT believe that the Administration would willingly default on debt payments if the debt ceiling is not raised when there are other less economically destructive options available. It would be both economic and political suicide.

Time will tell. I just really wish the petulant children would stop fighting and begin to solve the financial problems that plague our country NOW. And with that somber note, I promise to move on to non-political/ non-economic topics on my next blog post.

7 Comments
  1. Geoff Braine permalink

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  2. Geoff permalink

    “You have never seen in the history of the United States the debt ceiling or the threat of not raising the debt ceiling being used to extort a president or a governing party and trying to force issues that have nothing to do with the budget and nothing to do with the debt.

    So here’s where we are, and I think this is the bottom line and I want to make sure everybody is clear here. I have presented a budget that deals with — continues to deal with our deficit effectively.

    I am prepared to work with Democrats and Republicans to deal with our long-term entitlement issues. And I am prepared to look at priorities that the Republicans think we should be promoting and priority that’s they think we shouldn’t be promoting.

    So I’m happy to negotiate with them around the budget, just as I’ve done in the past. What I will not do is create a habit, a pattern, whereby the full faith and credit of the United States ends up being a bargaining chip to set policy. It’s irresponsible.

    The last time we did this in 2011, we had negative growth at a time when the recovery was just trying to take off. And it would fundamentally change how American government functions.

    And if you doubt that, just flip the script for a second and imagine a situation in which a Democratic speaker said to a Republican president, I’m not going to increase the debt ceiling unless you increase corporate taxes by 20 percent, and if you don’t do it, we’ll default on the debt and cause a worldwide financial crisis.

    Even though that Democratic speaker didn’t have the votes to force through that particular piece of legislation, they would simply say, we will blow the whole thing up unless you do what I want.

    That can’t be a recipe for governing. I have responsibilities at this point not just to the current generation but the future generations, and we’re not going to set up a situation where the full faith and credit of the United States is put on the table every year or every year and a half and we go through some sort of terrifying financial brinksmanship because of some ideological arguments people are having about some particular issue of the day. We’re not going to do that.

    So the good news is that we can raise the debt ceiling tomorrow just by a simple vote in each chamber and set that aside and then we can have a serious argument about the budget.

    And there are significant differences still between Republicans and Democrats when it comes to the budget, but it is going to be important for all of you, I think, over the next several weeks to understand what’s at stake is and to make sure that you are using your influence in it whatever way you can to get back to what’s what used to be called regular order around here, doing things in a way that reflect the genuine messy negotiations of democracy but do not promise apocalypse every three months.

    And I think this is the time for us to say once and for all that we can’t afford these kinds of plays. I know the American people are tired of it, I’m tired of it and I suspect you’re tired of it, too, because it’s pretty hard to plan your businesses when these kinds of things are looming at any given moment.”

    — President Barack Obama (September 18, 2013)

    This is reasonable. This is what a majority of Americans support. And a “clean” bill would pass in the House if Boehner allows it to come to a vote.

    In the interest of tying this to a song lyric, I present a very funny song from “The Muppets” (2011 movie reboot … very funny), which also happened to win the Academy Award for Best Original Song. Could be what has been / will be going on inside of Speaker Boehner’s head.

    Man or Muppet

    I reflect on my reflection
    and I ask myself the question
    What’s the right direction, to go
    I don’t know
    Am I a man or am I a muppet
    (am I a muppet)
    If I’m a muppet then im a very manly muppet
    (a very manly muppet)
    Am I a muppet (muppet) or am I a man (am I a man)
    If I’m a man that makes me a muppet of a man
    (a muppet of a man)
    I look into these eyes
    and I don’t recognize
    The one I see insi-i-i-ide
    It’s time for me to decide
    Am I a man or am I a muppet
    (am I a muppet)
    If I’m a muppet, well im a very manly muppet
    (a very manly muppet)
    Am I a muppet (muppet) or am I a man (am I a man)
    If I’m a man that makes me a muppet of a man
    (a muppet of a man)
    Here I go again
    I’m always running out of time
    I think I’ve made up my mind
    Now I understand, who I am
    I’m A Man!
    I’m A Muppet!
    I’m a Muppet of a man
    I’m a very manly Muppet
    I’m a Muppety Man
    That’s what I am

    – Bret McKenzie

    • Geoff…there are two separate issues here. One is government shutdown; the other is the debt ceiling and potential default on debt payments.

      On the government shutdown, what is often forgotten is that we have shut down the government 17 times (both Democrats and Republicans have done this) before the most recent shutdown and once we shut it down over, believe it or not, an argument over salary increases for Congress in 1979. Anyway, normally it never gets to this. Usually the party in control of Congress and the President negotiate on the budget and we actually end up with a compromise. But one problem the President hasn’t introduced a budget to Congress since 2009. We have operated the last 4 years on continuing resolutions and the 2011 budget reconciliation “deal”. In other words, the President has completely circumvented Congress when it comes to a budget. We are not acting as a country which compromises to deal with our disastrous spending addiction instead we’re just ignoring the problem totally.

      The debt ceiling has much less frequently been used as a negotiating lever. (It is becoming more frequent of late because we are growing our debt so much faster this past 5 years!) And we have NEVER defaulted on the debt. And still haven’t. However, as I pointed out above, the hyperbole of the President on this issue made more of a major crisis out of what was clearly an attempt by the Rs to get the President to negotiate. Even if the debt ceiling had NOT been raised in time, we would NOT have defaulted on our debt payments . Because we still many times as much cash coming in from taxes and other government revenues as the necessary interest payments that could be used to pay off the debt holders. Further, the Constitution mandates that these payments be made first before anything else. Would it have been an economic mess and hurt the economy because other government payments (social security, etc) have to be delayed? Yes! Would it be the economic armageddon that the President mentioned in his speeches. Absolutely NOT.

      So my point about the shutdown and the debt ceiling has been and remains, that the Republicans made a huge mistake shutting down the government and then refusing to raise the debt ceiling over Obamacare. Just not important enough to deal with the negative political consequences and some of the (mostly temporary) economic consequences.

      But the Dems and Obama are equally at fault by refusing to negotiate on the budget and spending cuts (other than the limited reconciliation cuts) except to increase it enormously between 2008-2012. This is my greatest frustration. The attitude is let’s just pass another “clean” continuing resolution and deal with the problem next decade! We can’t keep doing this!!!!! We are at the precipice NOW.

      My prediction is that we wont see ANY spending cuts beyond the limited ‘cuts’ due to reconciliation until we have a new President in office or if the Republicans take over the Senate as well as the House (and that isn’t going to happen now!). So yes I am pretty depressed.

  3. Bruce – 1) The affordable care act is very important. It is flawed because of all the compromises necessary to get something like that into law. But it is important because without it lawmakers have nothing to work with. Now for the first time in my lifetime they can actual work on much needed health care reform.

    2) Don’t make the mistake with respect to the shutdown that Tom Friedman made about the war in Iraq. He thought something good could come out of it because he totally misunderstood the Bush administration’s intentions. Similarly, these guys in Congress are not doing what they are doing for any reasons that I believe you really share. And nothing good is going to come out of it. It is purely political and will only lead to more impasse.

    3) The shutdown costs money: http://www.nytimes.com/2013/10/17/business/economy/high-cost-to-the-economy-from-the-fiscal-impasse.html?_r=0&adxnnl=1&smid=fb-share&adxnnlx=1381963901-rSVYxfj+Oz+OYLkQ5qEycA

    4) I’m looking forward to the next music post :-)

  4. I have mixed feelings about the affordable act. I like that we are getting more Americans on insurance which is an important goal. I am a little concerned though that it doesn’t do more to control costs which should also have been an important objective too. Lets hope you’re right and eventually it gets reformed further.

    And yes, given my response to Geoff above, its time for a music post!

    • Geoff Braine permalink

      Bruce:

      You said this: “But the Dems and Obama are equally at fault by refusing to negotiate on the budget and spending cuts (other than the limited reconciliation cuts) except to increase it enormously between 2008-2012.”

      Really? Care to explain the what happened the 19 times the Senate Democrats attempted to negotiate with the Republicans by semding the Senate budget to a conference committee this year?
      (http://www.nationaljournal.com/congress/19-times-democrats-tried-to-negotiate-with-republicans-20131007).

      I have considerable more faith in the Democrats bargaining (coming to a budget compromise) than the Republicans. And I think if you could intelligently split the difference between the Senate budget proposal and the House version, I be more than happy to sign up for that. But the Tea Party is inflexible, in ways which the more mainstream Republicans are not.

      Music note: McCartney’s new album is actually pretty good. A modern pop record.

  5. Geoff….If you look carefully at the article, you will notice that all 19 times the Senate democrats were trying to move its budget to committee by ‘unanimous consent”. “Unanimous consent” is a Senate procedure that is almost always used to pass non-controversial resolutions that are not of signficant national interest such as 100th anniversary memorials or tributes to States, organizations or even companies, Resolutions to honor wheat growers in America on national wheat grower day, stuff like that. It is rarely used to pass something as significant as the budget.
    Further, the Senate democrats did not negotiate at all with Senate Republicans on their budget resulting in a budget proposal this Spring that would INCREASE government spending (AGGGGGGHHHHH!!!!) by undoing all the 2011 reconciliation cuts. This isn’t compromise. This is a blatant attempt at railroading something thru.

    So is this a legitimate compromise or any indication that the Senate wanted to actually try and CUT the budget some more. Don’t think there is any chance of that.

    As far as your greater faith in Dems in actually developing a true budget compromise, I always believe (particularly in politics) that we should believe what the President or Congress DOES NOT what they say (since we have been lied to by politicians for as long as we have had a USA.). And when it comes to “doing”, all we have is the record of a huge increases in government spending to $3.6 trillion by 2011-12 and a doubling of US debt to nearly $17 trillion since Obama came in office and the Dems controlled Congress. Virtually all of the spending increase occurred from the so-called stimulus legislation passed on a straight party vote in 2009. (It was supposed to be “one time” stimulus but 90% of it resulted in a permanent increases in the budget of virtually every US government agency).

    So does that give me much faith that the Dems want to cut spending and truly shrink the size of government. NO. They are going to have “earn” my trust , by actually doing something like proposing moving government spending back to the $2.7 trillion level in 2007-08 at the end of the Bush years.

    But in truth, I don”t think they really care at all about cutting government spending but would rather pretend to care (when convenient), but mostly feed their constituencies with what they want to hear which is increasing education spending (teachers unions) social security (AFL CIO), food stamps, medical benefits, pensions (government unions) etc. etc. which is what they are doing when they campaign. And the hard reality which I have come to realize is that relatively few Americans care about our enormous debt, deficits, and money printing addiction. Its too complicated for them to think about and there are a number of “economist” enablers (Paul Krugman being the worst of them) as well as Wall Street who keep telling them its all going to be fine and work out. This is why the Dems will probably win back the House now and deficit and debt reduction will disappear from the radar screen.

    So I hope you are right about the Dems, but I would be shocked if it happens. I see us heading down a rat hole, with inflation, and then a large economic depression being the most likely consequences. No one wants to tell the Emperor that he has no clothes.

    So now you know why I am depressed about this topic.

    SO lets stop the back and forth. (as some of my blog readers may be tiring of this). If you really believe the Dems will get some real substantial budget cutting done, then I am glad for you. For me, nothing you say will make me sleep much better at night.

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