President Obama requests $1.2 trillion debt ceiling increase

By Michael J.W. Stickings

The Hill:

President Obama on Thursday made an official request that Congress raise the debt ceiling by $1.2 trillion over the objections of several House Republicans.

Obama's formal notification gives both chambers 15 days to vote on whether to approve the hike. The House plans to vote on this request on Jan. 18, a spokeswoman for House Majority Leader Eric Cantor (R-Va.) said.

The United States reached the $15.194 trillion debt limit on Jan. 4, according to Treasury statements. Since that time, Treasury has employed the "extraordinary measure" of tapping into its Exchange Stabilization Fund to avoid exceeding the limit.

Uh-oh. Another opportunity for Republicans to try to push America (and the global economy) off the cliff.

Thankfully, the Senate would need to vote against it as well, and the Senate, still under Democratic control, isn't about to vote for economic Armageddon.

Are Americans waking up to the fact that they don't like being held hostage by the GOP?

By Richard K. Barry

According to a CNN/Opinion Research Corporation survey released on Tuesday, just 33 percent of Americans approve of the Republican Party, while 59 percent disapprove.

As Politico reports:

That's a net negative 10-percentage-point shift from less than a month ago, when 41 percent of those surveyed by CNN said they had a favourable view of the GOP while 55 percent had an unfavourable one.

At the same time, Democrats' numbers have improved slightly, with approval and disapproval each at 47 percent. In July, 45 percent approved and 49 percent disapproved, a net 4-point change.

According to the survey, the Tea Party does even worse than the GOP with a score that is the lowest since CNN starting polling the movement in 2010. Thirty-one percent have a favourable view of the Tea Party while 51 percent see it unfavourably. In July, those numbers were 37 percent and 47 percent respectively.

The poll was conducted from August 5-7, which means that the questions were asked after the debt ceiling deal was concluded. Obviously that would have been top of mind with respondents.

One can read a lot into polls, but is it too much to suggest that more and more Americans are coming to the realization that they don't like intransigence in their political leaders? Is it possible that most Americans have more common sense than they are sometimes give them credit for, and that the need for compromise is something they value and respect?

Republican Senate Minority Leader Mitch McConnell may think that it was smart to hold the economy hostage for the sake of narrow partisan goals. Let's hope this poll signals a change that will prove him wrong.

(Cross-posted at Lippmann's Ghost.)

Michele Bachmann's failure to understand basic public finance

By Richard K. Barry

Dave Weigle at Slate ran an interesting piece recently about Michele Bachmann's understanding of government finance, or, we should say, her failure to understand it.

Here is Weigle's account of comments made by Bachmann at an event in Iowa:

When Bachmann arrived, she devoted half of her opening statement to the downgrade. The mesage: She could have stopped it.

"For the last two weeks, I led the fight against raising the debt limit," Bachmann said. Increasing the limit "pushed the rating agency over the edge." It was a $2.4 trillion blank check that caused the downgrade.

Make no mistake: The downgrade was Obama's fault: "We were somehow able to get through the Great Depression without a credit downgrade," she said. "Only under this president have we seen a credit downgrade... we are getting that credit rating back. This is to be our goal. That will be our mission.

Is it possible that Bachmann doesn't understand that the downgrade, however unjustified it may have been, occurred because S&P said they were concerned that the U.S. government could find itself unable to pay its bills? And that they might be unable to pay their bills precisely because the debt ceiling might not have been raised?

Is it possible she doesn't get that? And if the answer is yes, this suggests a whole new level of incompetence for this Tea Party darling, if that's possible.

This is on a par with the Wisconsin Tea Party cheering the fact that Democrats have blamed them for the S&P downgrade. In their simple understanding of the world, all we have to do is stop the government from spending money, even its current obligations, and everything will somehow, magically, work out.

I was not around when the United States devised its economic system. I'm pretty sure if I had been I would have suggested some improvements. But this is the system we now have, and I surely would prefer that anyone aspiring to the highest office in the land understand how it works.

It's not much to ask.

(Cross-posted at Lippmann's Ghost.)

Paul Ryan's newfound interest in revenues (or, what a difference a day makes)

By Richard K. Barry

Is it possible that the S&P downgrading of U.S. debt will be the one thing to convince Republicans that some form of revenue growth, i.e., tax increases, must be a part of their plan for deficit reduction?

Clearly the GOP in Washington has been adamant that the only approach they will consider is to slash and burn government programs while completely ignoring even a serious discussion about the revenue side. And so far they've had real success, as evidenced by the debt ceiling deal.

But then S&P came along and said, apparently with the kind of authority that the business minded Republicans feel uncomfortable ignoring, that revenues have to be in the mix.

In the S&P report there were several mentions of the damage being done to the economy by Republicans unwillingness to consider revenues.

With regard to the debt ceiling deal, S&P said the following: 

• The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. 


• It appears that, for now, new revenues have dropped down on the menu of policy options. 


• The act contains no measures to raise taxes or otherwise enhance revenues. 


• The majority of Republicans in Congress continue to resist any measure that would raise revenue.

And, as ThinkProgress reports:

Standard & Poor's indicates that they could improve their rating for the U.S. if "the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards," as the Administration is advocating.

It is perhaps not surprising then that House Budget Chairman Paul Ryan (R-WI) is now saying that he is open to revenue increases as part of a deal to reduce the deficit, which would be a significant change for the Republicans, who have so far been insistent that they would not support revenue increases.



As part of the debt ceiling negotiations, President Obama proposed several plans that would have cut $4 trillion in spending, but that would also have included modest revenue increases. Every time, the Republicans refused to go along.



In the short term, Republicans have been able to criticize Obama in the abstract, saying that it has been his poor stewardship that has lead to the S&P downgrade. But given the fact that S&P is laying much of the blame at the feet of the GOP for their rigidly ideological rejection of tax increases, the tide may be turning. The GOP may be starting to understand that the facts will clearly suggest they must shoulder much of the blame.



The American people expect politicians to work together for the best outcomes. As hard as the S&P report may have been for Obama this past weekend, the fact that Paul Ryan blinked on the topic of revenues may mean that the current logjam is busting open a bit.



Many of us have been screaming that Tea Party economics is not just bad for equity and fairness and social justice, but that it is also bad for the country's economy as a whole. So, Tea Partiers, if you don't want to listen to us, maybe you'll want to listen to S&P, who may be a lot harder to dismiss as a bunch of socialists out on the campaign trail.



They seem to have gotten Paul Ryan's attention.



(Cross-posted at Lippmann's Ghost.)

And a mess of Bam's barbecue

By Zandar 

And Fox Nation leaves this in a bag on America's doorstep, lights it on fire, rings the bell and runs (h/t Oliver Willis).

Ahh, the president's birthday celebration had black people at it and didn't create jobs! This is where we are right now, it's a brutally long campaign season, folks... and the rampant, ugly, and now massively overt racism by the GOP and their enablers is only beginning. People ask me how President Obama can put up with such drooling idiocy, and I remind them that the president is never the true audience for shock-jock racism like this.

In a sick way, you have to admire the blue-steel hatred Fox has for the man. When the dog whistles are put away and the megaphones are brought out instead, it's proof that the president's most recent maneuver has demoralized the Tea Party faithful and that it's time to throw the red meat into the pit to get some action going (which gives more "moderate" conservative pundits the chance to pretend to disavow the bomb-throwing to look "centrist and principled").

It must mean, then, that the rank-and-file Tea Party disagree with John "Orange Julius" Boehner's assessment that the GOP got 98% of what it wanted in the debt deal. Indeed, many Americans are furious at the Republicans in the wake of this week's deal and the weeks of hostage-taking that preceded it.

Time both to fire up the base and to take the higher ground at the same time while Eric Cantor blames the extension of federal unemployment benefits for causing unemployment itself, and vows to hold it hostage next.  Always onwards to the next Pyrrhic victory, our GOP friends.

Plain speaking: What President Obama should have said to the American people about the budget and the debt ceiling

By Distributorcap

This is the speech Obama should have given on Sunday night -- before he let the terrorists Republicans dance the hora all night. His polls would have gone up at least 20 points and his re-election would have been all but guaranteed. Americans may love hearing the words "tax cuts" (even when they're for 1% of the population), but they love their John Wayne character even more.

Ladies and gentlemen, the President of the United States:

Good evening.

As we all know, the U.S. government is scheduled to reach its limit for borrowing, or what has come to be known as the "debt ceiling" on Tuesday. The U.S. Congress, knowing full well the consequence of not increasing that limit would be economic chaos, has historically raised the ceiling under both Republican and Democratic administrations. This time, due to the intransigence of the opposition Republicans in the House, Congress has been unable to reach a compromise that would increase that limit. With a painful and catastrophic default staring us in the face, I am ordering the following steps to be taken:

Unless a clean bill raising the debt ceiling reaches my desk by Monday night, I will invoke the clause in the 14th Amendment to the Constitution that states, "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned" -- to raise the debt ceiling. As President of the United States, I cannot morally or financially let the United States default on its obligations. I cannot allow the actions of a small group of Representatives to push the entire American economy off a cliff. I cannot allow millions to suffer at the hands of a few. If you do not agree with this process or do not take well to the move I am undertaking and want to begin some sort of investigation into the legality of this procedure or even impose hearings for impeachment, let me quote our last Presiden: "Bring it on." I look forward to that fight.

After we ensure the continued flow of checks and payments, Congress and the Executive Branch will immediately begin discussion of the U.S. budget. To be blunt, these budget discussions will include spending cuts across the board, including defense, subsidies to the wildly profitable industries, and closing loopholes that exist only to enhance the re-election of specific Senators and Representatives, for example the corporate jet loophole. I cannot say what the figure will be, but every branch of government will be touched, including many of the perks enjoyed by Members of Congress.

The budget discussions will also include raising taxes on individuals and on corporations, especially those persons that make over $250,000 and corporations that have generated enormous profits yet pay minimal to nothing in taxes. Many of these individuals and corporations have profited greatly from the tax breaks and government bailouts over the past decade. It is time to review just exactly what this government largesse has truly cost a majority of the American people. The Bush tax cuts, which have cost over $400 billion and have not created any jobs, will not be renewed in their current form -- period.

These budget discussions will also include an in-depth examination of the cost to the American economy of sending jobs abroad and the creation of a public works program in conjunction with the private sector to rebuild our faltering infrastructure. The U.S. cannot compete in a world where jobs are shipped out of the country to save a few dollars and the rest of the world builds while applying band aid after band aid.

In addition, I am ordering Harry Reid and John Boehner to keep their respective constituents in session all month -- yes, I know it is August -- to hammer out the framework of a budget that I can sign, a budget that will truly demonstrate shared sacrifice across the board, a sacrifice that will not be based solely on those who cannot pay for high-priced lobbyists sent to D.C. to protect specific breaks and grants.

The past three years have not been a vacation for the American people, and therefore we, the men and women who these struggling Americans elected to shepherd in a better and stronger America, are not taking a vacation until we can agree on a true compromise to get our fiscal house in order.

Thank you.

I can't believe they still let David Frum be a conservative

By Richard K. Barry

I don't know David Frum. I know people who know him (or used to know him). I even spent a number of my early years in Canada watching and listening to David's mother, Barbara Frum, a respected Canadian television and radio journalist, who died far too young. If you follow the Canadian scene at all, you would know that the Frums are considered to be serious people.

Some time ago David decided to take his career to the U.S. and even worked as a speechwriter for George W. Bush for a while. At some point it seems that he, while holding onto his conservative political beliefs, decided that he was having a hard time with the radicalism coming from so much of the right-wing. Not to speak for him, but it appeared to me that he was having difficulty with the lack of cogent argument coming from so many on the right, especially the Tea Party right.

They weren't arguing the facts, they were simply mouthing platitudes that they believed to be supported by an understanding of what it means to be an American. For conservatives like Frum, who lives to argue the facts, that was crazy making.

I don't support Frum's brand of politics, his conservatism. He says that he's all about free markets, low taxes, reasonable regulation and limited government. Sounds okay in a sense but we all know that the devil is in the details so, no, he and I wouldn't agree about much once we started to get into the details.

But when he speaks, I believe that he is working hard to make a good case and that he would be open to other ideas if presented intelligently. As I said, I don't know the man, but that's the feeling I get. I think we also know that this kind of reasonableness on Frum's part has not always made him popular on the right and that strikes me, from my perspective, as a good thing.

I came across a piece that Frum wrote recently for CNN on the debt ceiling talks and I would like to recommend it to you. Not only does it makes sense, but it reminds me of the way I used to debate with conservatives about politics and economics. It used to be about positions and facts and arguments and maybe a good faith attempt to see things differently.

In the current context, here are three things that David Frum wants us to think about.

1. Unemployment is a more urgent problem than the debt.

2. The deficit is a symptom of America's economic problems not the cause.

3. The time to cut is after the economy recovers.

I don't intend to have this discussion here, only to say that America would be a better place if our political leaders, on both sides of the aisle, were able to have discussions on statements like these based on facts and not blind ideology.

Good on Mr. Frum for suggesting it.

(Cross-posted at Lippmann's Ghost.)

"An agreement in our time"

By Distributorcap

President Obama needs to add Dale Carnegie's How To Win Friends and Influence People to his reading list -- because since taking office in January 2009, he has done neither very well. One way not to win at negotiating is by working ass backwards -- in other words, focusing on avoiding the worst possible outcome instead of offering up the best. When Obama went on television last night to announce a deal was finalized to raise the debt ceiling, it was like he said "That was one tough negotiation, but hey, at least they didn't kill us." For weeks, Obama and the Democratic leadership have cowered in the corner, afraid that the Teabaggers would pull the trigger and cause the financial dominoes to fall over the globe. With that defensive posture went any chance of compromise. It was a rock 'em, sock 'em boxing match fixed before the first punch was thrown.

Rule 1 of negotiation: don't use your end point as the starting point. You don't start with trillions in cuts! Start with trillions in both revenues and stimulus, then negotiate down to some sort of midpoint -- and it might not be the midpoint you want -- but it won't be the low end. Rule 2 of negotiation (as told by Golda Meir): do not negotiate with terrorists. When you see the other side is a bunch of ignorant sociopaths bent on burning the village to save the village, do NOT be afraid to threaten. The 14th Amendment should have been Obama's Entebbe.

Instead, this capitulation will be his Munich.

The Republicans knew exactly what they were doing and that Obama would fold even if he held four aces. It has become very obvious to everyone (except the White House) that this president lacks any vision. A man with some of the most extraordinary oratorical skills in decades cannot see the forest for the weeds. He is simply too afraid and too professorial to think boldly and brazenly. A vision cannot exist unless you are willing to fight for it. George W. Bush had a vision (be it a warped and evil one, but he had one) and he fought for it (or at least Cheney pulled the strings for it). Bush's folly in Iraq got the lifeline it needed, a surge in military power, when #43 had a 28% approval rating and a Democratic Congress.

You have to be willing to look bad to look good, you have to be willing to be wrong to end up being right, you have to be willing to fail to succeed. Time and time again, Barack Obama has shown he does not want to risk looking bad to anyone, even to an opposition dedicated to destroying his presidency.

The final chapter of the Obama presidency was likely written yesterday. Obama looks bad, veered wrong, and has disappointed his supporters. As for failing, it is America that has failed, not Obama.

The debt ceiling deal -- who won and who lost?

By Richard K. Barry 

Two people I tend to consult to get a read on current economic policy struggles in Washington are Paul Krugman and Robert Reich. Not that anyone is ever right about everything, and maybe it's simply true that these two support my understanding of the world and I find that they usually make sense.

Whatever the case, they provided some pretty depressing commentary today on the deal Obama struck to raise the debt ceiling.

Here's Reich:

Anyone who characterizes the deal between the President, Democratic and Republican leaders as a victory for the American people over partisanship understands neither economics or politics.

The deal does not raise taxes on America's wealthy and most fortunate -- who are now taking home a larger share of total wealth, and whose tax rates are already lower than they have been in eighty years. Yet it puts the nation's most important safety nets and public investments on the chopping block.

It also hobbles the capacity of the government to respond to the jobs and growth crisis. Added to the cuts already underway by state and local governments, the deal's spending cuts increase the odds of a double-dip recession. And the deal strengthens the hand of the political right. 

And from Krugman in a piece entitled "The President Surrenders":

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

The bottom line is that there are two ways to win in politics. The first is to actually win the election and implement your policies. The second is to lose the election but, somehow, through power politics, political extortion, or appeal to aspects of the winners ideological predisposition that he may share with you, get the winner to do what you would have done had you won.

However it happened, does anyone doubt that, at least this week, the Republicans are controlling the terms of the debate in Washington and that it will be difficult to imagine how Democrats reassert control?

The "deal" means that we will continue to talk about what and how much to cut, which will benefit the richest among us, instead of what and where to invest, which would benefit the vast majority of us, especially those in need of gainful employment.

Not the finest day for America, as far as I can tell.

(Cross-posted at Lippmann's Ghost.)

On vacation, full of debt ceiling rage

By Michael J.W. Stickings

I'm currently on vacation and won't be blogging all that much over the next few weeks. Here and there, when the mood is right, but otherwise not. Rest, relaxation, and family are the priorities.

But, fear not, Richard and the gang will keep things rolling, and so I hope you keep checking back for new posts from my wonderful team.

Actually, though, I'm full of rage at the moment. I'm generally trying to avoid the news, and especially U.S. politics, but, well...

What has me enraged? The Deal, of course.

Yes, the new bipartisan deal to avert default by raising the debt ceiling and, to please Republicans, slash spending (of course, mostly spending that benefits the poor and downtrodden, the usual GOP targets, those no one in power seems to give a shit about).

Now, it's not yet a done deal. President Obama and the Democratic and Republican leadership have agreed to it, but not the rank and file -- and there are sure to be many on both sides who object to it.

Democrats have good reason to object. The deal is heavily Republican, a largely right-wing fix to a crisis created by Republicans. It's all about cuts, not revenue increases, and cuts that, again, will hurt those Democrats supposedly care about. Some Republicans will object as well, but only because -- let's put it kindly -- they're a bunch of petulant extremists who refuse to compromise and who are willing to let the country go into default, and face economic calamity, to get everything they want.

In fact, it has come to this largely because Republicans, from the top down (the leadership included), are bullies crazy enough to risk the country's health, so "patriotic" are they, having basically held the country hostage throughout this entire process.

Sure, I'm deeply critical of Democrats, including the president, for not fighting harder to prevent this, and for not standing up more determinedly for what they purportedly stand for, but, honestly, what were they supposed to do? Let the country go into default? Let the debt ceiling deadline pass, come what may? Sure, maybe. Maybe they could have spun that and kept the blame on the other side, and even come away with a political win, and maybe the impending crisis and public outcry would have forced Republicans back to the negotiating table with their tails somewhat between their legs, but... should they really have taken such an enormous risk?

Maybe Republicans were always going to win this, maybe it was inevitable, because all along they were willing to go further and risk more. That's the problem trying to negotiate with crazy people. They're willing to do things you're not. (Isn't that how Keyser Söze solidified his power?) In this case, Republicans were willing to sacrifice their country for their ideological demands. Democrats, being mature and rational and responsible, were not. And so they had to agree to a deal on Republican (i.e., insane) terms.

There was a brief time when Obama had the upper hand, after he had turned the tables on Republicans and back them into a corner, and with public opinion on his side, but he was only going to win this if he went all the way. And, say what you will about him, he wasn't prepared to play that game, not with so much at stake.

I suspect the deal will pass tomorrow. There will be major defections, but surely enough arms can be twisted, enough dissenters bought off, to make it happen.

And then? Crisis will have been averted, at least temporarily, but Republicans will declare victory -- for getting most of they want (loads of cuts, no new revenue).

The Democrats? They'll get nothing out of this politically.

Obama? Yes, probably. He'll be able to reinforce his credibility among independents by presenting himself as a bipartisan leader who got it done when it mattered (no matter the awful details of what got done).

But unless Democrats can gain control of the narrative and make the debate about ending the deeply unpopular Bush tax cuts for the wealthy and protecting deeply popular entitlement programs (Social Security, Medicare, etc.), this deal won't do them any political favors next year, with with Republicans set to hammer them, however dishonestly (as usual), for being tax-happy, spend-happy socialists.

At least for now, there is reason for cautious, extremely cautious optimism. The deal would allow the president to raise the debt ceiling by $2.4 trillion (with $900 billion in spending cuts):

That will be paired with the formation of a Congressional committee tasked with reducing deficits by a minimum of $1.2 trillion. That reduction can come from spending cuts, tax increases or a mixture thereof.

If the committee fails to reach $1.2 trillion, it will trigger an automatic across the board spending cut, half from domestic spending, half from defense spending, of $1.2 trillion. The domestic cuts come from Medicare providers, but Medicaid and Social Security would be exempted. The enforcement mechanism carves out programs that help the poor and veterans as well.

If the committee finds $1.5 trillion or more in savings, the enforcement mechanism would not be triggered. That's because Republicans are insisting on a dollar-for-dollar match between deficit reduction and new borrowing authority, and $900 billion plus $1.5 trillion add up to $2.4 trillion.

However, if the committee finds somewhere between $1.2 and $1.5 trillion in savings, the balance will be made up by the corresponding percentage of the enforcement mechanism's cuts, still in a one-to-one ratio.

Democrats say they're confident that the enforcement mechanism is robust enough to convince Democrats and Republicans to deal fairly on the committee -- to come up with a somewhat balanced package of entitlement reforms and tax increases. However, the White House assures them that if the committee fails to produce "tax reform" he will veto any attempt to extend the Bush tax cuts, which expire at the end of next year.

Again, the focus is on spending cuts, not revenue increases, but at least cuts to defence spending are on the table and at least it's possible that revenue increases will be part of any future deal.

Actually, scratch that. I'm still highly enraged. And there's really no good reason for optimism at all, even cautious optimism. Obama may want to use the Bush tax cuts for the wealthy in his re-election campaign, as a winning issue (assuming public opinion stays roughly where it is), but he has shown little to no willingness to stand up for progressive principles -- indeed, for principles that are simply not Republican, so much of a moderate Republican does he appear to be -- and, what's more, neither have most Democrats on Capitol Hill, it seems.

All of which is to say, if Obama and the Democrats have been willing to cave so much already, what should make us think anything will change?

iUSA

By J. Thomas Duffy 

Well, if we see President Obama sporting a black turtleneck over the weekend, perhaps that will signal that Apple has purchased the U.S. Government.

 

U.S. balance now less than Apple cash 

Steve Jobs is now more liquid than Uncle Sam...

As Republicans and Democrats continue to work towards a compromise to the country’s debt ceiling crisis, the U.S. Treasury Department said on Thursday that Washington now has a total operating balance of only US$73.768-billion.

Meanwhile, Apple currently boasts a cash reserve of US$75.876-billion, as of its most recent quarterly earnings report at the end of June.

 

If that happens, I suppose, we'll all be mandated to purchase iPhones (which will help streamline the iLocater program), and changes will include download apps for things like Social Security and Food Stamps.

And Jobs can scratch the plans for building his new spaceship office, as, no doubt, he'll move straight into the White House, incorporating the Apple logo into the presidential seal. 

Welcome, to the good ol' iUSA!

(Cross-posted at The Garlic.)

How do you kill the economy? Pass a balanced budget amendment.

Guest post by Publius

The House recently passed “Cut, Cap and Balance” (see John McCain’s fantastic take on it here). Republicans are convinced of the need for a balanced budget amendment, and one of the most cited arguments for they give for a balanced budget amendment is that 49 states have one so the federal government should too.

The concept of a balanced budget amendment sounds intuitive enough. “Ordinary Americans and 49 states have to balance their budgets,” the argument goes, “so Congress should too.” Well, not exactly.

First, there is a huge difference between the balanced budget “amendments” (several states have laws instead of constitutional amendments) at the state level and the proposed amendment at the federal level. The state amendments, for example, do not even attempt to balance the entire state budget. Instead, they almost exclusively only apply to a state’s “general fund.” The general fund oftentimes constitutes less than half of a state’s budget. It is the fund out of which general expenditures flow and into which general revenues enter. “Special” expenditures and revenues, such as gasoline taxes, education expenses, etc., have nothing to do with the general fund and are exempt from the balancing requirement.

If Congresspeople would stop and think about their argument for a moment, they would quickly realize that the balanced budget requirements at the state level either can’t apply to the entire budget or are laxly enforced. Most every single state is currently running a deficit, and has been for several years! Further analysis by these Congresspeople would also show the issue isn’t lax enforcement- at least exclusively.

In 1987, the Advisory Commission on Intergovernmental Relations published an oft-cited study (PDF) of state balanced budget requirements. The study examined each state’s budget balancing requirements and the mechanisms each used to enforce the requirements. It then ranked each state on a scale of 0-10, with 0 being no enforcement mechanism and 10 being the strongest possible enforcement mechanism. 26 of the states ranked a “10,” and in 2004, California recently became the 27th state to join that category by adopting an amendment to its constitution. Here’s how those states have done with their deficits since FY 2009:

States in categories 3-5 (fairly lax enforcement) had the largest deficits by far over the measured periods, but states in category 10 (most stringent) were the next worst deficit spenders. Ironically, states with little to no enforcement mechanism had almost no deficit (though only 2 states fit in this category, so not much of a sample size). This suggests that stringent enforcement of a balanced budget amendment is insufficient to produce a balanced budget for the states.

The scatterplot table below (amounts in thousands) shows the deficits by year, state and category. California’s enormous deficits and NY’s 2010 deficit were removed from the scatterplot because they shrunk the scale of the chart so much the rest was not legible:

The scatterplot is a bit messy, but it shows the size of the deficit for each state within the 0-10 enforcement categories described above. There’s no getting around it. No matter how strict a state balanced budget requirement is, states continue running deficits during this economic downturn. This doesn’t mean the balanced budget requirements have no impact- only that they don’t accomplish what Republicans in Congress think they accomplish.

One might ask, “Why isn’t the federal proposal (which demands that the entire budget be balanced) more workable than the state proposals?” Well, first consider that the federal “general fund” only accounts for about about 35% of the entire federal budget. That number includes defense spending, however (which is considered “discretionary” even though it has a history of only going up). Non-defense discretionary spending only accounts for about 15% of the budget.

A true “balanced budget amendment” like what Republicans have proposed could require that money which is allocated to defense spending or other mandatory spending (social security, Medicare, Medicaid, interest on the debt, etc.) be cut in order to balance the budget. In FY 2010, for example, the deficit was about $1.3 trillion. Total non-defense discretionary spending in FY 2010 was only $714 billion. Even if all non-defense discretionary spending was eliminated in FY 2010 (no spending on education, justice, health, roads or other infrastructure, etc.), we would have still had a $586 billion deficit. Total defense spending in FY 2010 was only $663.7 billion, meaning to avoid any cuts to mandatory spending (which, as its name implies, is money we must spend), the Department of Defense budget would have been reduced by 88% (to a total of $77 billion). The last time defense spending was that low was 1973.

As should be obvious, when a severe recession hits, it’s quite difficult to balance a budget. In fact, it’s also precisely the wrong thing to do in a recession (when spending should go up as a stabilizer). The federal government has a macroeconomic role through fiscal policy which it cannot play if it is hamstrung by a balanced budget amendment. But even assuming that wasn’t the case, there’s just not enough discretionary spending to cut to balance a budget in a severe recession. Recessions reduce tax revenue dramatically because people lose jobs and stop paying FICA and income taxes. There just aren’t enough discretionary dollars to eliminate to keep pace. That means defense spending and/or mandatory spending has to be cut. So who should cut it?

This is the next problem with the balanced budget amendment. The enforcement mechanism. If the Constitution requires Congress to balance a budget and it doesn’t- what happens? In some states, the governor can eliminate spending without legislative approval (like a line-item veto). In 2010, however, there is no chance any politician would have voluntarily eliminated 100% of discretionary spending plus a large amount of defense/mandatory spending. The courts, then, would be required to mandate the cuts or, alternatively, raise taxes (also a bad idea during a recession). One can only imagine the Republican cries of “activist judiciary” in such an instance- and ironically they would have been the ones demanding that the judiciary take such an activist role. I should mention that tax increases could be adopted in lieu of spending cuts, but I haven’t spent much time on that option because: a) Republicans would never agree to tax increases; and b) to ensure no tax increases are passed, Republicans have proposed in Cut, Cap and Balance that all tax increases require a 2/3 vote, effectively making them illegal.

So, what happens if the courts also don’t act to force the budget to balance? The Constitution is violated and, as we are seeing with the debt ceiling debate, the nation’s credit rating would beat risk as a consequence (thereby threatening global economic instability).

Of course, the federal amendment could be fashioned to look more like the state balanced budget requirements and only apply to discretionary spending. Needless to say, such an amendment would not eliminate federal deficits (which is the stated purpose of enacting such an amendment). The amendment would be circumvented entirely in recessions (appropriately so from an economic perspective) which would only serve to undermine the Constitution and the rule of law. The accounting tricks employed by states to “balance their budgets” would only be magnified at the federal level thereby creating far more frustration with the system (California technically has a balanced budget this year, despite its projected $17.9 billion deficit).

The balanced budget amendment as included in Cut, Cap and Balance is quite possibly the worst economic idea any major party has actively promoted in modern history. It can’t work- except to wreak havoc. Few other proposals stand to do as much harm to the US and global economies, particularly during recessions.

(Cross-posted at The Fourth Branch.)

Now what?

By Mustang Bobby.

Now that we've basically wasted two weeks in this pointless exercise of coming up with a debt ceiling bill in the House that had to be rejiggered so many times to make the crazies happy that the final version couldn't pass the laugh test only to have it die within seconds in the Senate, what's next?  Platinum coins?  Kited checks?  A late-night raid at Gringotts?  (Watch out for the dragon!)

Aside from all the inside-the-Beltway juvenile behavior and tantrums, all the intricate economic measures and soothsaying from the portfolio managers and Wall Street denizens who vultch over the markets waiting for something to drop, there are millions of people who don't know a hedge fund from a hedgehog or care about the hurt feelings of John Boehner but who rely on the government and its services to make it through their daily lives.  If the checks don't come, they are in real trouble.  Everyone from the retired nurse in Boise, Idaho, on Social Security who budgets her monthly check down to the penny, to the little company in Waterville, Ohio, that is keeping their employees paid through a contract with the federal government to provide food to the local school system for Title I is counting on the money to be there next week.

The folks in the Tea Party say that we shouldn't be so dependent on the government; that we should all be self-reliant and strong, and maybe this intentionally-manufactured crisis on their part is a good lesson on how we should wean ourselves away from it.  That's idiocy (not to mention breathtaking hypocrisy), and it demonstrates a basic lack of understanding of economic reality.  No one is asking for a hand-out; the nurse earned her pension throughout her career and paid into it, and the company, like millions of other businesses in the country, is doing business with the government just like they'd do it with any other private business.  It's how our economy works.

We saw such rank stupidity from the Tea Party in microcosm when the auto industry was in trouble in 2009 and they said it would be a good thing if GM and Chrysler went belly-up; for one thing, it would be sweet revenge for the Chevette and the K-car.  As in that case, they didn't get it, and just like the auto business has a larger footprint beyond Detroit, a huge segment of the economy relies on providing goods and services to government-run facilities such as schools, hospitals, construction projects, road maintenance, utilities, airports, harbors, police and fire departments, and hundreds of other businesses.  If they stop getting paid, then the employees don't get paid, and then they're not buying food at the grocery store, gas at the filling station, or paying their rent or mortgage.  The ripples become a tsunami.

We have had plenty of lessons in hard times economically, most notably the Great Depression of the 1930's, and the measures we have in place such as Social Security and Title I are what we came up with to help us through such times.  Like it or not, this is how We The People decided how to run our country.  We've also seen what "smaller government" brings us.  It's not Paradise.

What's most galling and enraging is that the Republicans did this not because of a philosophical difference of opinion in macroeconomics.  If that were the case, they wouldn't have let President Bush run up the huge deficits he did or raise the debt ceiling all those times when they were in the majority.  No, they did it out of pure spite and to try to ensure their political future.  No one is naive to think that they wouldn't do it, and given the chance, the Democrats, if they had any balls, would have played their political cards as well if it was a Republican in the White House.  It happens all the time.  But to bring it to the level of endangering the economic welfare of this nation and possibly the global economy is ratcheting it up to the level of bring a nuclear weapon to a mugging.

It's one thing to demonize Muslims with hysteria about an Islamic center in lower Manhattan, scare the fools with stories about anchor babies in Arizona, and ostracize an entire segment of the population with horror stories about the wrath of God over marriage equality.  But to intentionally wreck the economy because they hate the idea of a Democrat -- and a black man -- in the White House deserves swift and wrathful retribution.

They should be held accountable for this kind of terrorism, and a year from now, long after this moment of brinksmanship has passed, we should be reminding every voter of who it was that held the country hostage while they played with the nuke.  Given the short attention span of the American public -- oh, look, another white woman is in trouble -- I don't hold out a lot of hope, but that doesn't mean we shouldn't do everything we can to limit their contribution to politics to calling in on C-SPAN or baying at the moon.

(Cross-posted from Bark Bark Woof Woof.)

Made in the GOP

Republicans Seek Credit for a Debt Ceiling Solution

By Nicholas Wilbur

It's pretty clear at this point that the debt ceiling debacle isn't about spending cuts and tax increases and entitlement reform and balanced budget amendments.

It's about 2012.

That is the only logical explanation for the Republican Party's blanket opposition to every attempt by Democrats to solve this impasse over an otherwise routine debt limit increase. Republicans need something they can campaign on in 2012.

After three years of saying no to everything – health care reform, Don't Ask Don't Tell repeal, the Dream Act, a nuclear treaty with Russia, the Libya intervention, unemployment benefits, and most recently the debt ceiling increase itself – Republicans need a legislative victory they can show off to the voting public.

They fared well in the midterm election by campaigning against policies that were already on the books, but they've failed to achieve any of the repeals and nullifications they placed at the center of their 2010 campaign: "Obamacare" is still in place, the stimulus bill was not reversed, and the debt continues to grow.

They also failed to end federal funding for Planned Parenthood and NPR, to gut the regulatory oversight of the Environmental Protection Agency, and to turn Medicare into a voucher program. As for the far-right Tea Party conservatives out there who thought the 2010 election would mark a turning point for the morality of the United States, every day is another reminder that Republicans have also failed to make abortion illegal, to replace biology with Intelligent Design in our nation's schools, to abolish the IRS and the Department of Education, to return to the gold standard, and to protect our government against Sharia law with a constitutional amendment.

They cannot win another election simply by campaigning against everything, especially not when they've fallen short of achieving any of the goals they sought. Republicans need a legislative victory. This debt ceiling fight may be the last opportunity to campaign for something in 2012. (God knows they can't point to the 2011 budget negotiations and boast about how they slashed the deficit; according to the non-partisan Congressional Budget Office, the bill they agreed to eventually ended up costing $3.2 billion, not saving the $78 billion they claimed.)

And that is why Republican Majority Leader Eric Cantor stormed out of negotiations last month. It's why Speaker John Boehner abandoned negotiations with President Obama last week. Every deal Democrats have offered, whether to slash government spending by $4 trillion or to cut entitlements, may have been a capitulation to Republican demands; it may have been snatched up without pause by any other Republican Party; but it was still offered by Democrats.

Democrats are the opponents, and accepting a deal crafted by the enemy is sacrilege in Washington, D.C., today – even if doing so provides a means to achieving the ends you campaigned on in the last election.

Republicans need to draft their own bill. They need to prove that they are capable of governing, of leading. They must be able to demonstrate to their constituents that the Grand Old Party represents more than obstruction. They need to pass a law that has a "MADE in the GOP" label on it.

And so they did. Or tried.

It was titled the "Cut, Cap and Balance" bill, and it did everything Republicans wanted. It cut spending, capped total outlays based on average GDP growth, and called for an amendment to the Constitution requiring balanced annual budgets. (See "The Balanced Budget Amendment that Wasn't")

Despite being heralded by Speaker John Boehner as a "bipartisan bill," CC&B passed along party lines in the House, receiving only five Democratic votes to 229 from Republicans. Not a single Democrat voted for it in the Senate.

In a speech following the president's national address on the debt ceiling crisis, Boehner claimed, "there's no stalemate here in Congress." It wasn't his only false claim.

  

"I want you to know," he said, "I made sincere effort to work with the president, to identify a path forward that would implement the principles of 'Cut, Cap and Balance' in a manner that could secure bipartisan support and be signed into law."

The bill "could" secure bipartisan support if it were a bipartisan bill, but it didn't because it isn't – and neither was the proposal Boehner came up with after Democrats rejected the CC&B bill in the Senate.

CBS News poll

In attempting to solve one problem, Republicans have created another. Like everything Republicans have proposed this year – repealing health care reform, eviscerating the EPA, defunding public radio – Boehner's proposal is slated for failure because it makes no concessions to Democrats.

What's more, not only will the new proposal fail to garner bipartisan support in the upper chamber, it is also failing to unite Republicans in the House.

Rep. Jim Jordan, standing alongside Boehner at a press conference, thanked the speaker "for fighting for Republican principles," but said "I cannot support the plan that was presented to House Republicans this afternoon."

Instead, Jordan is urging Republicans to stick with the CC&B proposal, even though it couldn't garner a simple majority in the Senate; even though it requires a supermajority to pass.

Republicans have found their footing with a bill that the majority of Republicans support, but they have isolated their opposition such that voting on their bill represents nothing more than a symbolic gesture aimed at creating the perception of party unity.

Boehner's speakership is on the line. The Republican Party's majority hold over the House may be in jeopardy, as well. A strong majority of the American people have shunned the GOP for holding up a deal to avert default. A strong majority supports tax increases. A strong majority supports compromise.

Any debt ceiling deal that cuts federal spending, reduces the national deficit, and averts disaster by preventing U.S. default will be seen by voters of both sides as a policy victory for the ages.

Republicans appear incapable of taking the steps that are necessary to allow them to claim even partial credit in that historic deal. They cannot accept anything they themselves didn't create, and they cannot make concessions that will allow Democrats to accept anything they did create.

Congress is no closer to a debt ceiling agreement today than it was six months ago, and the Republican Party's goal of having a legislative record on which they can base their 2012 campaign is still out of reach.

At this point, Plan B is likely a repeat of the 2010 "blame Obama" strategy.

Unfortunately for Republicans, public opinion polls consistently show a "blame Republicans" mentality.

According to the latest CBS News poll, 71 percent of the American public holds Republicans responsible for the impasse.

If the United States defaults, Democrats would be wise to take a page from the Republican Party's 2010 campaign playbook. A "repeal the GOP" platform could prove effective in 2102.

Then again, if Republicans let the nation default, Democrats might not have to campaign at all.

(Cross-posted at Muddy Politics.)