Round Two

The problem with caving in to a blackmailer is that they are inevitably emboldened to try again. Usually the second extortion effort raises the stakes for both sides. This is where we are with the budget. Obama caved in last week in order to keep the government functioning. In the process he acquiesced to a long litany of right wing demands. The cuts agreed to include all sorts of completely irrelevant attacks on various aspects of long standing social programs. The Republicans littered the proposal with cuts that are minor in dollar terms, but hugely significant to their culturally extreme voter base. So the lunatics won round one. They are now back for more.

The start to round two was signaled yesterday when the Republican leadership announced that it will allow the US to hit its debt ceiling. This is expected to happen sometime in mid-May. After that deficit spending will have to be met either by cutting spending, as the Republicans expect and hope, or simply by printing the money needed – i.e. not through borrowing, an approach I have yet to see endorsed by anyone in our elite on either side of the ideological divide.

This will get ugly. Really ugly.

Let’s all acknowledge the serious nature of what is about to go on. The right has set the game up for themselves: this debate is one they precipitated by deliberately defunding the federal budget by cutting taxes back in 2001 and 2003.They undermined our fiscal stability by enacting tax cuts that deprived Washington of money. At the same time they enacted big increases in government spending. They were the very epitome of recklessness. Yet the voters still perceive them as conservative. The left has failed miserably by not being able to persuade voters of the enormous risks associated with those tax cuts. If – a big if – we are on the road to ruin it is because of Republican fiscal strategies, not purely because of unaffordable programs.

Consequently, we are now discussing what America will look like for the next fifty years. Will there be one America with a solid middle class and relatively less inequality? Or will there be two Americas with the current sharp divide widened further? A top one percent, and then the rest? Please keep this in mind as we debate what to do.

The greatest feature of our economy over the last thirty years has been the systematic attack on democracy by the wealthy. They have used every trick to undermine equality. They have accumulated unprecedented power and wealth by emphasizing notions of freedom and individualism that resonate well with voters, but play to the hand of only the strong. That is to say the wealthy themselves.

The long term failure of the American economy to maintain its post-war growth path opened the door to the revival of these and other anti-social ideas. They took strongest root in the aftermath of the 1970’s stagflation when the wealthy were abetted by zealous and ideologically motivated economists who wanted to overthrow Keynesianism. They subsequently infected business with shareholder value strategies that shortened investment horizons and undermined competitiveness. They fueled the great cost cutting and offshoring movement of the past three decades. They encouraged the steady decline of all forms of collective action to protect the weaker elements of society. They encouraged absurd risk taking in finance. They undermined social programs aimed at lifting the poor. They reduced taxes for themselves. They resisted shareholder control of management. They set up interlocking boards of directors so that like minded people sat in judgement of CEO’s. They neutered all criticism. And they homogenized the world view of our media and elite so that there is no alternative taught in “respectable” or “serious” schools nor reported in the mainstream press.

In short they took power and then censored and gutted or suborned the opposition.

Most of this long list has happened in the past thirty years. Cumulatively the effect has been astonishing. America is now the most divided nation in the industrial world. More so than it has been for a very long time. And it is arguably the least stable because its democracy has been subverted.

In short America was taken over, silently and effectively, by a very small group who now runs the place for itsown benefit.

But even the very rich cannot pull off a coup of this sweeping nature without accomplices. This was the cause of the uneasy alliance the wealthystruck with the populist wing of the Republican party. A wing that grew in power in the aftermath of the contests over desegregation and women’s rights. It is easy to forget just how much hatred was stirred to the surface by the prolonged debate over the Civil Rights Act. It’s echo is in today’s right wing disgust at Obama’s very presence in the White House and the pervasive doubt, within the extremist camp, of his place of birth. The alliance is structured this way: the rich want to rent seek and amass wealth. The populist/libertarians want to roll the clock back to a past era where government didn’t interfere. And by interfere the more extremist Republicans mean the government should no be able to limit their ability to discriminate.

Yes, this fight is that basic.

Yes, it is that venal.

Yes, America is that divided.

And, no, some people have never forgiven government for ending discrimination. For them it was an intrusion into their liberty.

It was, I think, Amartya Sen who said that there are no famines in democracies. The great fight over establishing the safety nets in the industrialized nations was a reflection of this effect of democracy. Voters look after themselves. Sooner or later they will force politicians to make sure that most people are safe from economic disaster. This is why democracy is in opposition to capitalism. The one spreads the wealth. The other concentrates it.

That we, in America, have so weak a safety net, and that we have so many people without health care coverage is testimony, by extension of Sen’s observation, to the weakness of our democracy. Money talks in our politics. The agenda is set by the wealthy. The majority have to accept what little they can get.

It is this pernicious context that now puts a boundary around what is, and what is not acceptable in the debate over the deficit. Our elite assumes the deficit is an existential problem for the nation because it is an existential problem for them. So they have forced us into this discussion. And the libertarians are along for the ride. It is the rentier class who would lose from inflation – which erodes the value of debts – so the Fed watches inflation like a hawk and ignores, relatively, unemployment. This is also why financiers warn about credit markets and debt levels: their assets are at stake, so they force us to act against our own interests in favor of theirs.

In his speech today, Obama presented his view of how to deal with the deficit. He told us that no sensible solution can avoid raising revenues. That means increasing taxes and broadening the tax base by eliminating the plethora of avoidance schemes and loopholes that reduce it. So he proposes allowing the Bush tax increases to go into effect for the top tier of income earners. Also, it is important that any cutting extends to include offense spending. The Pentagon’s long term burden on our budget is unsustainable. It needs reduction. Obama agrees.

The big nut, however remains health care, which means Medicare. The Republicans have done us all a favor by admitting publicly that they want to eliminate Medicare. That was the thrust of the ridiculous plan presented by Paul Ryan last week, and which was vividly attacked by Obama today. The voucher scheme proposed by Ryan is designed to move the burden of health care costs onto the elderly. This effect results from the way in which the voucher’s value would rise independently of, and slower than, health care costs. So a gap would open up that would have to be filled by the elderly themselves. Or, of course, they could forgo treatment. This attack on Medicare opens space for the Democrats to respond to the voter’s fondness for the program. Poll after poll suggests that voters do not want Medicare abolished. Indeed, and ironically, the most vehement opposition to cutting costs in Medicare comes from self-confessed Republican supporters.

One point to keep in mind is that the Republican voucher scheme does nothing to control health care costs themselves. It simply shifts the burden out of the government budget into private budgets. Obama, in contrast has attempted to roll back the steady rise in costs by pushing through his reform law last year and, today, by calling for the beefing up of oversight of Medicare spending and using its market power to force lower prescription costs.

Neither the Ryan plan nor the Obama plan will be passed into law of course They are merely the opening salvo in what promises to be a very hot and protracted war.

Which brings me back to my theme: this is a test of our democracy. If the wealthy win the debate, as they certainly did during the talks over finance reform, we should expect to continue towards a more divided nation. The stakes are high for the wealthy. They will spend a great deal to buy the necessary votes to force the burden of austerity onto the poor, elderly, and sick. Obama’s willingness, and ability, to lead the resistance is crucial. His speech today was encouraging. But his track record is worrisome. He talks a good game, but then negotiates badly. This time he needs to stare down the extremists. He cannot, he must not, he should not, give in to their extortion efforts again. If they want to use the debt ceiling as hostage, then let them. Let’s have the fight that they keep asking for. Make it clear who wants what. Then dig in.

Round two is all about the future of the middle class. It is beleaguered and in retreat. It is suspicious and confused. It is angry. It does not need pretty talk. Nor does it need to be betrayed by weakness in the face of the attack from the wealthy. It needs a strength Obama has so far failed to demonstrate. And it needs an articulation of why this fight is so important. In short, it needs leadership.

Perhaps even more than this: if we lose round two, the cause of democracy will be set back even further.

Inequality must end. The major portion of austerity should fall on those who led us down the fiscal path we have travelled. The responsibility is theirs. They should pay the cost for fixing the mess their policies caused.

Obama has set a partisan tone with his speech. He has set up the fight. Can he carry through?

I wonder.