Sunday, August 7, 2011

Debt Deals

Starting over this blog... seems like a good idea to keep my political rants in its own separate thing instead of just facebook (/google+) posts.

Anyway, this recent debt ceiling/deal/downgrade is a perfect example of how depressing politics can be. The Tea Party largely gained political power in the '10 midterms by campaigning about how bad our national debt is. Yet if it weren't for the far-right wing of the Republican party, our debt situation would now be in much better shape and the S&P downgrade wouldn't have happened. The S&P downgrade in and of itself doesn't really matter, but based on new polls, this seems to have the effect of a much higher disapproval rating of Obama, which can lead to a further rise in power for the Tea Party, which will in turn hurt our debt prospects even more.

First of all, only the far right movement within the Republican party thought it would have been ok to not raise the debt ceiling. S&P said if we would have just done a clean raise of the debt limit, they would not have lowered our rating.

Then, when it turned out that the debt ceiling vote was going to be a point of negotiation for getting our debt situation under better control, Obama and Boehner came to a tentative $4 trillion deal. About $3 trillion was going to come from spending cuts including big changes in Medicare and Social Security (programs Democrats are usually very resistant to changing). The other $1 trillion would be new revenues only by closing tax breaks, not by raising rates. A purely liberal deal would be all revenues, and a purely conservative deal would be all spending cuts. And for market-oriented conservatives, new revenues by closing tax breaks and subsidies should be great because those distort the free market anyway. This deal was *VERY* heavily tilted in favor on conservatives and would have been a huge victory for the Republican party, especially considering Democrats hold the Senate and the White House. The Democrats would have lost the support of a lot of their base if this deal had passed, especially from raising the Medicare eligibility age by a few years, but they were willing to make huge concessions for the sake of accomplishing something big.

Some Republicans (like Boehner) were on board too, but the new wave of more Tea Party-style Republicans wouldn't accept the $4 trillion deal because they won't vote for anything with a single dollar in revenues. Because they are completely uninterested in any sort of compromise, we almost defaulted on our debt, weren't able to come to nearly as big of a deal for reducing the deficit, and now we're down to a AA+ rating. There's no reason to blame this on Obama or Congress in general; it's clear who specifically should get most of the blame.

There are 2 big policy levers for getting our debt under control over time: tax hikes and entitlement cuts (Medicare/Medicaid mostly). Republicans really don't want to raise taxes; Democrats really don't want to cut entitlements. But if they want to actually get something done, just like in all deficit deals of the past, they'll have to do some of both. Obama and the Democrats involved in making a debt deal were willing to give a hell of lot to make a big deal happen. Some of the Republicans were willing to take that deal. But as long as we have a sizable portion of Congress that believes in absolute ideological purity instead of actual results, we're not going to be able to make meaningful progress on our long term debt problems. Based on the facts of what actually happened, I'd like to know how this is, as my mom some people put it, "all Obama's fault".

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