The Debt Debacle

Boy are we in trouble.

Everyone who has been following political news these past few days knows by now that Obama, Reid, Boehner et al. just negotiated an agreement for ending the debt-ceiling holdup initiated by Republican members of the House. The deal consists of no new revenue-raising measures (i.e. taxes), but does contain over two trillion dollars in spending cuts. Most news coverage on the deal has celebrated the amazing feats of bipartisanship that brought the deal to its closure; coverage of Giffords returning to Congress comes to mind. (Giffords’s return to Congress is of course a wonderful thing, but few can deny that the spectacle of her return drowned out serious coverage of the substance of the debt agreement). While a large number of Democrats have dissented and expressed their disappointment with the bill, the consensus in popular discourse (or at least in America’s televised media) is that the agreement saved the day; at the very least, it was a necessary evil. They proclaim: The world of politics requires that tough decisions be made—the Democrats had to compromise in order to avert disaster. Of course the radical, progressive branch of the Democratic Party would be disappointed by the way negotiations turned out! But they are fringe elements of the political system, so who difference does their dissatisfaction make to the bulk of us?

Of course this is all bullshit. The deal is not only a tremendous loss for the left—more tragically, it’s really, really bad for America.

The reasons the agreement bodes ill for liberals are obvious. Revenue was not raised as Democrats wanted; socially valuable discretional spending on education and infrastructure are going to get cut; Social Security and Medicare costs are still going to spiral out of control under a Democratic president’s watch; and of course progressives have been alienated by Obama’s failure to leverage the superior bargaining position he attained in the beginning of the showdown and reluctance to invoke the fourteenth amendment as a means to legally circumvent the whole ordeal. The agreement does contain some provisions for defense cuts, which is a minor plus for Democrats. But really, who cares? The political consequences of this new agreement are inconsequential in the grand scheme of themes; come election season, none of this will figure into people’s votes—Americans don’t have a knack for remembering. They do, however, care about unemployment, and other indicators of economic catastrophe. So…what we really should be talking about are the economic consequences of the agreement, not the politics of who wins brownie points today.

And this is what disturbs me: virtually no one is talking economics!

Brad Delong posted a short entry on his blog shortly after the agreement was announced with an early guestimate that the proposed cuts to spending would hack 0.4% from our 2012 real fiscal GDP growth.

http://delong.typepad.com/sdj/2011/07/the-debt-ceiling-deal.html

In the world of macroeconomics, this is a pretty big chunk of change. And the timing couldn’t be worse: newly released economic figures have shown that growth over the past few years has been much lower than previously believed. Many indicators are suggesting we are about to plunge right back into full-fledged recession. As any real macroeconomist will tell you, a huge slash in government spending will also decimate demand, leading to more job losses and tanking productivity. A reduction in spending now is just stupid from a policy perspective.

Unfortunately almost no one is drawing on the Great Depression as a historical example for what this spending cut could do to our economy. In 1937, just as the US was beginning to bounce back from the worst years of the crisis, the Conservative Coalition came into power in Congress and forced the rollback of many New Deal policies, effectively hacking away at fiscal spending (sound familiar?). Compounded with some ill-timed monetary maneuvers on the part of the Fed—and some other messy things going on with international capital flows—the US sank right back into recession.

Of course, defenders of the deal will point out that the spending cuts are back-heavy: only twenty-some billion dollars in spending cuts will go into effect in 2012, for example, the majority being instituted in the last few years of a ten-year period (though this still is more complicated…more cuts would automatically be triggered if spending caps out at some point along the way). While it is true this does mean that the burden on the economy won’t be as severe as it could be, one could hardly list this as a plus; and in fact if projections that we are about to re-enter recession are correct, then the institution of mandatory, inflexible spending cuts over the next ten years will do nothing to pull us out of it. Why should we be so eager not only to walk off the plank, but to tie our hands behind our backs before doing so?

While everyone on MSNBC is talking about what a travesty the debt agreement will be for America’s social safety net (and believe me, it will be), few are talking about the even more startling economic ramifications this massive cut in spending could elicit. The compassion of the left for the poor is, ethically speaking, what makes it the superior ideological pole, so understandably many liberals take up arms over the flagrant human rights violations that accompany socially toxic right wing policies. Thus the bleeding-heart reaction of liberal media news outlets to the debt ceiling agreement is unsurprising. But what liberals often forget is that their ideology—which holds firmly to the value of equality—is not only good for the poor: more dramatically, it benefits the economy as a whole! Until liberals learn to be standard-bearers of this empirical truth, and until they make a push to change the discourse around what being liberal looks and sounds like, they shall continue to alienate potential allies among the public. Ostentatious invocations of social justice may sound like music to the choir, but to those outside the congregation they inevitably come across as naïve and pretentious posturing.

Leftists: learn to trump up the nationalism! Conservatives aren’t the only ones who care about this country. If there’s anything most Americans can agree on, it’s that a robust economy is good for America.

Make them see that your way is best, and they will listen.