Debt Battle Lines Drawn
Given that the Presidential State of the Union Address is simply an opportunity to showcase a preferred direction rather than a time to introduce solid legislation, last night’s effort was predictably dull. So was the response.
My reaction to this theatrical moment is that it sets the stage for the next round of arguing and that much of what was said will slip into the mists of memory rather more quickly than usual. This is because the immediacy of the upcoming fight will rapidly overshadow whatever was said last night.
The one thing that seems clear is that we are now entering the next phase of discussion, if that is the right word for what is going on, about the national debt and the Federal deficit. On the one side we have the administration, and Obama, who acknowledges that our national debt has become a problem, wants to reduce it, but also wants to preserve a few of our more useful social investments like education.
On the other side are the Republicans, now very publicly split between establishment and radical wings, who are in a slash and burn mode. They want to cut away anything that smacks of government intervention in the economy and really don’t see a continuing place for social investment in things like education. After all, for them, the free market is the one and only sensible, efficient and thus “free” provider of such investments.
The ideological divide that appears here is more apparent than real. Obama, by talking about the deficit without placing it firmly in context, has allowed the Republicans to establish the agenda. He is seen as preserving what he can. They are on the attack hacking away at all things social.
Why is the context so important?
Because it was the creation of the Republicans themselves. For decades they have defined anything social as being either nasty, horrible, inefficient, wasteful, overly costly, or downright evil. Thus the huge original investment by the government to invent, nurture, and then launch the internet is conveniently swept under the rug, and we are left to suppose that it sprang fully formed from the innovative minds of Silicon Valley entrepreneurs. This is a lie, but is one that fits nicely within the free market narrative, so we rarely see a proper push back against it. The GOP agenda was clear decades ago: if they could reduce government revenues sufficiently over a long enough period, they could then induce a fiscal crisis under which guise they could implement their anti-government programs. Given enough damage to the nation’s finances this might even include the elimination of Social Security and Medicare the twin towers of evil in the minds of Reagan and his ilk.
Crucial to the success of this long term plan was compliance by the Democrats. And a willingness by everyone in power, business, media, and elsewhere, to adhere to a free market driven approach to policy making. That the entire elite of the US shifted its thinking towards the GOP viewpoint was the most important accomplishment of the Reagan era.
Thus “centrism” is a relative term and now defines a space radically different from that it described three or more decades ago. This is why I distrust centrist politics: it is an attempt to preserve a status quo carefully crafted to the Republican advantage. As I have said here before: so successful has this redefinition of moderation been that Eisenhower would now appear to be to the left of Obama. Odd, but true.
By successfully and successively defunding government during the Reagan era, and by co-opting Democrats along the way, the Republicans can now open an all out assault on government spending. And they can do it wearing the apparently virtuous mantle of fiscal rectitude.
This is absurd.
They have advocated fiscal recklessness ever since Reagan plunged the nation into debt in order to avoid making the cost of his military build up specific. Remember: he was the first American president in history to run large government deficits by choice. All previous deficits were the result of events beyond the immediate control of government: wars, recessions etc. Reagan’s deficit was deliberate. The only other such instance of choosing deficit was when Bush plunged us deeper into red ink as a result of his tax cuts.
So the first true part of the context for the upcoming budget wars is that the Republicans are fiscally reckless, deliberately creating deficits in order to further their own ideological agenda. Their sudden volte face, if allowed to go unchecked, would be an astonishing coup of public media manipulation. I expect them to succeed given the supine nature of the administration.
The next piece of the context is the long term impact of our various social and military programs. There are five major components to our government’s spending: Social Security; Medicare; Medicaid; Military/security; and interest on debt. The rest are a melange of small programs and items like environment; agriculture; food safety; judiciary; energy; and so on. The biggest problem on this list is health care. Our demographic and policy trajectory currently will cause health care to take ever larger shares from our budget. Costs need to be reduced in order to relive this stress. This was the impulse for health care reform last year. Whatever you may think of the reform, no one who has cast an objective eye over it thinks it will add to the deficit. On the contrary it is a first stab at reducing it. Either way, if we are to reduce the deficit, social and military spending are the places to look. This seems to me at least, to require an adult fact based discussion about our priorities, and not some sophomoric bun fight cut free from any reference to reality.
The third aspect of the context of our debate is the recent crisis. It is the yawning, and temporary, gap in the deficit caused by the massive loss of revenues and parallel rise in spending that has captured and animated conservative minds. So disturbed are they that they are best described as in panic mode. Unfortunately this panic seems to have spread across the entire elite. This is not surprising given the homogeneity of views represented there. Let me repeat: the cyclical deficit is a very good, necessary, and socially productive phenomenon. Indeed by adding to it in response to the crisis we have saved ourselves a free fall descent into depression. Thus this aspect of the deficit should be hailed by one and all as being a “good thing”. Not as something we be in any hurry to get rid of it.
All this brings me back to last night’s theatrics.
We are now clearly going to go through a bout of great political import. The fight will have an immense impact on what kind of country, let alone economy, we become. In a sense this is to be encouraged. We need, at long las,t to discuss whether we want an economy bereft of government intervention, the likes of which we have not seen for at least seventy years. Let me put it this way: very few people alive today can readily recall the social and economic realities of the last time the US genuinely had a “small” government. Those peddling a view that small is good are doing so on the basis of imagination and faith, rather than fact. This is, of course, why what they are selling is so alluring to an unsuspecting public. After all whatever we have just experienced didn’t seem so good, so hacking away at it looks like a good idea.
In general terms this is why I abhor our loss of balance. Both socially and economically. My view is that a healthy society is built upon a tension between capitalist and democratic principles. Neither, alone, can provide a level of security, comfort, and health for the maximum number of our citizenry. Thus business should be allowed to get on with what it does best, but should also be severely reined in so that its externalities like pollution, waste, unemployment and so on are mitigated or offset by communal action in the form of government intervention. Further, I also believe that there is ample evidence to support the idea that certain activities within society are best performed by the government acting on our collective behalf. Only screaming libertarians would argue that the government is the best agent for running the nation’s military. I happen to extend that into health care as well based simply on the social benefit we all derive from the lower costs that result from exploiting the largest possible actuarial pool we have available: all of us. There is no logical riposte to this, only ideological ones that are willing to tolerate inefficiency in order to protect a specious so-called freedom.
Lastly, as we get ready to debate, I wish we could stick to facts rather than faith. But America is highly faith based right now, and so I doubt we can keep ourselves away from non fact argument. One instance is already in view: the premiss of last night’s Republican response to Obama’s speech was that we need to avoid the fiscal errors evident in Europe. This assumes there were errors. There weren’t. Indeed neither of the primary examples put forward: Ireland and the UK have experienced a government caused debt crisis. Ireland was the very epitome of fiscal rectitude prior to the collapse of its banks. And the UK, while it was running deficits, was under no pressure in the credit markets to take drastic action. Both suffered from a fiscal implosion, not in the public sector, but in the private sector. The Irish crisis was directly due to the activities of its banks. Not to the recklessness of its government. And the great austerity underway in the UK was a policy choice, not a necessary reaction to crisis.
Thus, just as there there is no foundation to the idea that the Republicans are a party of fiscal skill, there is no foundation thatwe should heed the experience of Europe. On the contrary each of these notions are actually counter-factual examples to be used against the GOP.
Nor is there any need to rush into fiscal balance. We need to avoid cutbacks for a while longer. The UK experience here presents a very important lesson. Far from encouraging us to follow the UK into austerity, the evidence teaches us precisely the opposite. We should be very leery of such a course of action. Why? Because their austerity programs have apparently caused their economy to shrink, as any Keynesian would have suggested they would. Whether the shrinkage continues into full blown recession is yet to be seen, there may be extenuating circumstances, but the lesson is still clear: you cut spending at your own risk. By so doing you drain demand from an already demand light economy; you add to unemployment; you reduce government revenues by reducing your tax base; and you postpone the moment when the recovery reaches a sufficient pace to fix what ails us. Most importantly, and this is not so much economic as social: you define the nation as being less caring, less tolerant, less concerned with its environment, and less concerned with its future. You fragment society and divide it.
During the upcoming argument we need to be very clear about all of this. Otherwise we risk undoing the entire advance since World War II. That might be the objective of the more radical Republicans, but I doubt many voters would go for it. At least I hope not.
