Nor will the United States of America collapse, if it slips into an August of No Borrowing.
But first, let me reiterate a key starting point: despite chicken-little proclamations pouring from all sides, America won't tumble into hell if there's no budget deal by August 2.
==Jeopardy in the Short-Term?==
The cause of "carpocalypse" level panic in D.C. is fear that the U.S. credit rating will collapse, if the debt ceiling isn't raised in time. America is said to be the only major nation that's never defaulted on its obligations, resulting in easy access to cheap bonds. And indeed, a true default on interest and principle payments could do serious harm, raising risk assessments and borrowing costs for ourselves and for our children. But that won't happen.
Even if August 2 passes without a deal, and the U.S. government abruptly stops borrowing, there will be no reason for our national credit to be damaged, more than a scintilla.
And if all interest is being paid, exactly what will the credit markets have to complain about? Will their calculations of self-interest really change that much, because of an official state of insolvency - clearly very brief - that won't affect their bottom line a single bit? There is a word for market participants who let symbolism trump calculated self-interest.
Chumps. Sure, speculators will send bond yields on a roller coaster for a couple of days. Then, their place will be taken by calmer, more calculating heads. Winners.
Oh, don't get me wrong. The August 2 deadline is a serious matter! The President will be forced to shutter half of the government. Farm subsidy payments and student loans won't go out. Social Security checks may be cut in half, or they may not go out at all. That's bad! But that won't last very long, you can be sure. No more than days - a couple of weeks, at most. And the difference will be made up, within a month.
The short term victims of this idiocy will be politician-demagogues with careers cut short by self-inflicted wounds. We won't see a collapse of the United States of America.
My real worries extend over the longer term, to the underlying problem of which this is just a hiccup symptom. The same damned curse we've suffered for 20 years. Our grinding decline into phase three of the American Civil War.
==A Primer on the Impossible Politics of Debt Reduction==
Never mind history. For the GOP-controlled House to do this for Obama, after all their radical rhetoric, would be political suicide.
President Obama has made it even more difficult to back out. By seeking a Grand Deal on the deficit, he took on his own party's base to offer major cost-savings in entitlement obligations, such as Medicare and pensions. For the GOP to walk away from a table heaped with budget cuts, efficiencies and spending limits amounting to three trillion dollars over ten years - more than they ever asked for - would be public admission of hypocrisy.
(Secret factoid: the Democratic leadership sees this event as an opportunity to do some major fat-trimming that the country desperately needs, but that they could never justify to their base, under normal conditions. Each side could do this - enact some vital reforms while blaming the other side! That is, they might, if pragmatic adults filled the room.)
Why can't the GOP accept this offer? Because Obama demands one trillion dollars in revenue to compensate and help pay for it all. Every penny of new revenue would come from elimination of targeted pork or fatcat tax breaks - like subsidies for the corporate jets that helped the rich to escape the "TSA hell" the rest of us endure in public airports.
Polls show the public overwhelmingly supports this modest set of adjustments, especially since taxes on the rich are at their lowest rates in 50 years. But most of the radicals who recently came into the House of Representatives under the Tea Party banner have signed Grover Norquist's pledge to absolutely never, ever enhance revenue going to the federal government, under any circumstances. Even during times of war.
(How did we go from budget surpluses under Bill Clinton, rapidly paying off the debt, to arterial gushers of red ink under Bush? Could one major factor have been going to war for the first time in the nation's history without a plan for shared sacrifice, or any provision to pay for it? Norquist doesn't try to soft-pedal his aim, which is to "strangle the U.S. federal government to death"... a literal quotation.)
Such a pledge leaves no wriggle room. No space for adjusting to circumstance, to negotiate or deliberate. or to be a delegate for all of your constituents. Even the narrowest exception, one that gets three dollars in budget cuts for every dollar of loophole closing - (which old-sane conservatives like Goldwater or Buckley would deem a huge victory - is absolutely anathema to today's GOP.
Whatever you think of the doctrinal details - wherever you stand along the dismal, lobotomizing "left-right axis" - you've got to admit they are impressive. Reciting exactly the same talking points within hours, sometimes even minutes. The most ideologically pure and stunningly well-disciplined party machine America has seen in two hundred years.
==The McConnell Two-Step==
Now, there are smart people on both sides of the current debt-ceiling mess... even some of those who are out of their freakin' minds... who know they've painted themselves into a corner. As we speak, they are desperately seeking a way out. And some of the imaginative escape plans are downright stunning.
Take the proposal of Senate GOP leader Mitch McConnell to evade the political mine field by deliberately surrendering to the President the power to raise the national debt ceiling.
Say what? Your party disapproves of red-ink spending, right? (It never bothered you under GOP presidents, when the mantra was "deficits don't matter.) So... your solution is to throw away your Congressional power of say-so over borrowing and hand it over permanently to the wastrels in the Executive Branch?
How does the mind even wrap itself around that one?
Actually, the political legerdemain is pretty clever! Try to follow along.
First, you pass a bill that tosses all power to raise the debt ceiling over to your enemy President Obama. In the long term, this abrogates forever one of Congress's chief powers , to force the nation's focus on the budget (like right now!) But it gets you out of being responsible for a default.
You know Obama will raise the limit, for the sake of the country. And so, Social Security checks will flow. You won't be blamed for stopping them. Phew.
Next, you express outrage that Obama has done exactly what you tossed him the power to do! Great. And then, according to the new law, you pass a resolution through the House blocking the debt-ceiling increase!
But... won't that stop the Social Security checks?
Nope, because you feel safely certain it will fail in the Democratic-controlled Senate, or under the president's veto pen. Thus GOP Congressfolk get to have a win-win! They escape from the debt-limit crisis they triggered. No Grand Deal means the government keeps spending like mad, but without any tax adjustments on the rich. And, above all, you can tell your back-home radicals:
"I voted against any debt-limit raise! Our fingerprints aren't on it! HE did it!"
It's a fabulous tale, worthy of science fiction. But, um, here's a question for House majority leader Eric Cantor And Senate GOP leader Mitch McConnell: Sirs, do you actually think that will work?
Sure, 'he' (Obama) will have raised the debt ceiling. But only because you voted to give him that power... forever! Will your constituents really be too stupid to notice that? Sure, past history suggests you may be right about that. But can you count on stupidity saving you... forever?"
The President should reject this idiotic ploy, in savagely contemptuous terms, even if it means that the debt-raise deadline passes by on August 2. As I said (above) our credit rating will be fine. There will be no permanently credit-damaging "default." And the nation might do well to go without federal checks for one or two weeks. It'll make us think.
==What's The Worst That Can Happen?==
In fact, we've seen all this before. Back in the 1990s, Republicans in Congress shut down the government... and paid for it politically. But they felt a grand gesture was necessary for ironic reasons. Because, for a brief time, House Speaker Newt Gingrich and President Bill Clinton actually worked together!
Upon first taking over Congress, in 1995, Gingrich made a lot of bellicose statements. But he also wanted a track record of accomplishment. And so, he sat down with Clinton to negotiate Welfare Reform, a bill that took on many complaints about a system that both right and left found unworkable and destructive. The result was legislation that simply worked. So well that "welfare" has dropped from the lexicon of top political issues, even among polemical extremists.
And that brief interlude of sane-discussion and compromise had other products. Gingrich and Clinton worked out budget control measures that resulted, soon thereafter, in the first balanced books and black ink in the federal treasury since Eisenhower. Black ink that Clinton diligently applied to debt reduction, even later when they GOP demanded that it all be given to their top 1% sponsors. Even when he was being sprayed by the opening salvoes of Culture War.
It was a remarkably productive year or so. And Republican radicals looked upon what had been wrought by Gingrich and Clinton. And they saw that it had been achieved by pragmatic negotiation and good old American, non-dogmatic problem solving. And they saw that citizens and the nation benefited and the public thought it good.
And they swore that nothing like it would ever happen again.
Whereupon the Great Federal Government Shut-down Crisis commenced, accomplishing nothing but noise and smoke and posturing and harm to conservatism. (Read-up about the eerie parallels to today's big posturing festival over the debt ceiling.)
When that venture flubbed, the GOP decided to try something even more radical, while expecting different results. They crossed another traditional barrier by impeaching a President over matters that had nothing to do with his performance of the job we hired him for... indeed, for doing far less than eight out of the fifteen "House Managers" (prosecutors) had done to earn their own messy divorces. Only one other president had ever been impeached, in the direct aftermath of Lincoln's assassination. But the turning of trivialities into mega drama seems to be a trait that we must live with, during this phase of our ongoing civil war.
What does this history lesson have to do with the current crisis? It shows what we could have, right now, if adults chose negotiation, yes, even across an ideological divide. And it shows the ultimate futility of partisan rage, when pragmatism is replaced by fevered dogmatism. It shows that Mr. Obama needs to study Clinton and learn to be tough.
He must call... their... bluff.
==Punishing Job Creators==
I want to conclude by getting specific. Some of the polemical nonsense being hurled about seems to come straight out of the corrupt ad agency in "Mad Men." Much of the claptrap is being answered well. But I wrote to a cousin of mine who works in the Executive Office to point out some major Murdochisms that are going unrefuted. Here is a big 'un.
Deficit-cutting helps the economy. But any revenue increase hurts "job creators."
Here are two points that someone ought to say in reply:
"Now, in spite of that fact, we're willing to do lots of cutting! Because we have to. We've spent a decade plunged into land wars of attrition in Asia without doing what all our ancestors did, in time of war - making sacrifices to pay for it. Well, the bill is due.
"But if several dozen middle class Americans must go jobless to save a million dollars... exactly how is it sacred 'job-creation' to give the same million dollars in special interest tax breaks to some billionaire corporate jet owner? Do you really believe he'll use that million to hire 30 people?
"Sure, it's happened, now and then. But if the Bush tax cuts had translated into 30 jobs per million given to the rich, we'd have almost no unemployment right now!
"So, why should we swallow that line, this time?"
"Now Republicans say we should be stingy to the working class, but generous to the rich, so they can make jobs. But if economists know one thing, it's that the rich don't spend the way middle class folks do. They don't have to!
"Sure a few of them build factories. We'll extend tax breaks for useful capitalist enterprise, for research and investment in job-making capital equipment.
"But this is no time to go into debt preserving huge tax gifts for those who simply hold onto it all, hardly spending. That's not velocity. It sure isn't job-creation. It's using your friends in Congress to just get richer while the middle class pays."
Okay. Yeah, I know that those concepts - like money velocity - may be dismissed by political operatives as hard for Joe Six Pack to grasp. Well, I don't agree. I think they'll nod, understand, and feel flattered at being explained stuff, like adults.
==What It Boils Down To==
I consider the "Tea Party Movement" to be one of the most brilliant sociological ploys. Perhaps unmatched since a million poor white southern farmers were talked into eagerly and courageously fighting to the death, in order to protect the feudal privileges of a tiny, slave-holding aristocracy. Yes, it is that impressive. Get them to think they are fighting for one thing, while dying for something else.
Likewise, by holding up and waving an obsolete and irrelevant old "left-right'political-axis," today's feudal lords have managed to stir Red America into a frenzy of unparalleled rancor toward every single group or profession that has both knowledge and professional skill -- from scientists to teachers, civil servants, academics, medical doctors, attorneys, diplomats, skilled labor... amounting to a "war on smartypants."
Why stir hatred for all of the folks in society who know a lot? Calling them "intellectual elites?" This program clearly has one aim.
To protect one set of elites from being counterbalanced by other elites. Pretty simple, actually.
...that is, until it was stirred by foreign-owned propaganda machines, with that one goal. To sic us at each others' throats.
==See more articles on The Economy: Past, Present and Future