Democrats Bad Debt Ceiling Strategy

Debt Ceiling CartoonIt seems that budget negotiations between the White House and Senate Republicans have broken down. This is part of the effort to avoid a government shutdown and then default. It’s kind of funny when you think about it. Why is the White House negotiating with Senate Republicans, when it is the Democrats who control the Senate? Oh, that’s right! Because Congress, the Senate in particular, is totally fucked up.

The problem in the negations is that the Republicans want to cut entitlement programs. The White House is fine with that, but they want corresponding tax increases in the form of reduced tax deductions. The Republicans will have none of it. Let us take a moment to think about how absurd this is. Our economy is in a bad state. So the Republican response: make it worse by cutting entitlements. The Democratic response: we will only make the economy worse if you agree to do even more damage by raising taxes!

The economics of this is very simple. Our economy is running below capacity. Businesses are not investing because there is not enough demand for their products. Think about it: why buy a new widget making machine if you already have more widget making machines than you need to keep up with the widgets that people are buying? As a result, there is a lot of money just sitting around. So lowering the amount of money that the government borrows is not going to increase the amount that businesses are borrowing. (Also note: businesses are currently sitting on huge piles of their own money.)

I don’t expect much from the Republicans. They don’t want to cut entitlements because they think it is good economic policy. They want to cut them because it takes money away from the poor and that is just what Republicans do. But I do expect something from the Democrats and this raising taxes obsession is madness. While it is true that taxing the wealthy will not have the deleterious effect that taking money away from the poor will, it is still bad for the economy right now. What’s more, it all seems so much like a game. When Obama got the Republicans to agree to a tax increase earlier this year, Democrats were triumphant. It wasn’t that it was good policy; it was simply that “Obama forced the Republicans!” Big deal.

From a political standpoint, this doesn’t make sense either. Let’s suppose that Obama got what he wanted: cuts to entitlements and raised taxes. The budget would pass through Congress with primarily Democratic votes. So in 2014, the Republicans would campaign on the fact that the Democrats cut Social Security and raised taxes. Brilliant guys!

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

0 thoughts on “Democrats Bad Debt Ceiling Strategy

  1. Mark Blyth’s "Austerity" that you rec’d finally came up on my library lists, and while I haven’t gotten too far into it, he’s a pleasant writer to read. He’s well aware of how much stuff on economics is boring and goes over the same territory, so he tries to put it in a simpler and innovative way, and often succeeds. (Nobody can do justice to the 2008 crisis without referencing CDOs and CDSs and the like which cause human eyes to unfocus, but he gives it a good try and does better than others I’ve read on the subject.)

    Plus, his little video on austerity was golden.

    Proponents of sane economic policy (they don’t even have to be left-leaning, just rational) are in the same position now that Friedman and his ilk were in 1965. They’re on the outside shouting in. Unlike Friedman, who basically started a cult, there are quite a few of them. Will they ever be heard? Who knows, but in 1965 nobody expected the Friedman/Hayek/Rand policies would rule from 1980-on. So we never know how things will change . . .

  2. @JMF – You are right: Blyth’s book is great.

    Here’s the thing about non-austerity economics. It has been shown to be right. And yet even much of the economics world (the "conservative" economics world) doesn’t accept it. Friedman became important because stagflation proved that he was right. Liberals accepted proof. I’m not sure that conservatives will ever accept the proof.

    In other words: liberals do economics. Conservatives do economic apologetics. That doesn’t mean that conservative "economists" are always wrong. But it does mean that there is no convincing them of anything that goes against their ideology. You might as easily convince a Christian that Jesus was just a preacher.

  3. My favorite line from Blyth so far (p. 18):

    "Austerity doesn’t work . . . but the fact that we are still being told that it does shows us one thing: facts never disconfirm a good ideology."

    That, plus his story of being supported by welfare as a child, made me like the man immediately.

  4. @JMF – It’s funny that a lot of correct economics is simply what people think. You have to make some complicated arguments to explain how fiscal stimulus [i]doesn’t[/i] work, because everyone can see that it clearly [i]does[/i]. But people don’t mind doing intellectual back flips if it is in support of their ideology.

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