Thursday, July 28, 2011

Debt Ceiling - Thursday Update

So here we are, almost at the end of the "debt ceiling crisis". The House will vote soon on Speaker Boehner's bill. So what's going to happen?

My forecast for now:

The almost revolt from Republican freshmen will be quelled, and Speaker Boehner's bill will pass. Before the ink is dry, this evening, in fact, it will be tabled by the Senate, where all 53 Democrats have vowed to vote against it. Then what? Compromise time for the leaders. Reid, McConnell, Pelosi and Boehner will get together and craft a bipartisan bill that can get through both House and Senate: $1 - $1.2 trillion in cuts; $1 trillion in debt ceiling increase; further increases using the McConnell-Reid model (Congress disapproves, President vetoes, Congress cannot override); debt commission (probably 6 Democrats and 6 Republicans) with no fixed target for cuts and a fast legislative track for cuts getting 7 votes; some kind of spending category trigger to cut spending if commission isn't progressing; and probably a vote on the Balanced Budget Amendment.

The big item not in the list is the "two stage" approach in the Boehner plan, requiring a second debt ceiling vote before the 2012 elections.

So who wins? Republicans will claim victory, based on securing big spending cuts with no new revenues/taxes. Democrats will say they have prevented a disaster by being reasonable on spending cuts, not adamantly sticking to the call for new revenues (particularly since they will get a ton of new tax revenues at the end of 2012 when the Bush tax cuts expire) and insisting on no second stage vote. The President will probably say that he had hoped for a larger, "grander bargain", but it was not to be.

Conservatives, the Tea Party and Freshmen House members will be deeply disappointed and angry. They will feel they came close to a moment of transformational change and leadership chickened out. Lots of conservative groups are/will be very angry at what they will consider perfidy by the Speaker (Freedom Works, Heritage, Club for Growth, Republican Study Group). We can expect this anger to surface during the 2012 budget fight coming in the Fall. It will affect the developing presidential campaign in ways we cannot yet see (Bachmann opposed Boehner, as did Pawlenty; Romney just today came out in favor of the Speaker's plan).

How will the President feel (whether or not he expresses it)? I think he truly hoped for a Grand Bargain combining cuts in discretionary spending, including defense; a reshaping of entitlements; and new revenues from a completely reworked tax code. Progressives are truly angry at Obama for putting Medicare, Medicaid and Social Security into the mix. Some pundits argue he was doing it as a negotiating strategy, knowing it would never make it through the labyrinth of approval processing. But most are now coming to see that he really intended a reworking of some elements of entitlement policy, and that constitutes betrayal.

Conservatives don't believe he is serious about spending or entitlement cuts. In fact, it doesn't even rise to the level of a possibility in any conservative commentary I have seen. So he is accused of betraying core progressive principles from the left and gets no recognition of his move's significance from the right. Boehner Monday night, after the President: "The President just wants a blank check...etc."

So what's up? Is this move to fiscal discipline real, or just tactical posturing? I think it's real. I think Obama understands that the Republicans' 2012 call will be to fiscal discipline, smaller government and less spending. So claiming a position in the sound fiscal discipline camp could help in his reelection. But I also think Obama senses, and senses deeply that America is concerned about the economy, about the future, and that neither the political process nor the American people will allow new investments in America's future, until there is a sense of fiscal stability and soundness running through the discourse and our awareness. Obama does not think we can move forward as a nation until the economic platform is stabilized in terms of spending and debt.

Later, in other posts, I will make the argument for more spending to boost demand and present evidence how the entire debt level crisis, from a real economics perspective, is a figment of myth and imagination. What is important now though is to recognize that Americans believe the national economy is like an individual household, where it is possible to run out of money. The President (and many others) make this case. Economically, it is not true. But philosophically and politically, the President needed to embrace this current, not oppose it. He has done this successfully, and will, I believe, continue to do so. And by next summer and fall, he should have effective counters for what will be the central Republican attack.

Here is my key question: Has this crisis succeeded in showing the radical nature of the Republican Party to the American public? Do a significant number of voters now understand the risks of turning the country over to Republican ideology? My answer: we have made progress, but there is still a long way to go. And I must be honest: part of me hopes the radical House will not vote for a compromise deal, leaving the President no option this coming Monday afternoon but to invoke the 14th Amendment. If this were to happen, which I do not predict, the true face of Republicanism, in its current form, would become visible. And I do not think people would be pleased with what they see.

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