Debt-ceiling deals: Turning away from prosperity to austerity

mcconnell

A potential breakthrough in the debt-ceiling debate is being reported. Six senators, known as the "Gang of Six", have been meeting for months on a bipartisan debt and deficit reduction plan. The six include:  Democrats Mark Warner of Virginia, Dick Durbin of Illinois and Kent Conrad of North Dakota, and Republicans Saxby Chambliss of Georgia, Mike Crapo of Idaho and Tom Coburn of Oklahoma.

The plan is said to be "balanced," meaning there will be big cuts in spending plus some revenue increases from closed loopholes and abandoned deductions like mortgage interest. That's alongside, of course, an agreement to raise the debt ceiling and not revisit it until after the 2012 elections.

The president has endorsed the "approach," wanting to get the debt-ceiling potential catastrophe off the table.

But the deal is also a big step in the direction of Austerity Economics - the lunacy of fighting recessions with more layoffs.

Cuts in basic entitlements - Social Security, Medicare, Medicaid - will not drive more customers into the empty parking lots in stores across America, nor fill up the order books of manufacturers. Those empty parking lots and order books are the number one and two reasons why economic recovery is sputtering.

The rich continue to make out like bandits in the "six" proposal, according to economist Dean Baker:

"The  budget plan produced by the Senate's 'Gang of Six' offers the promise  of huge tax breaks for some of the wealthiest people in the country,  while lowering Social Security benefits for retirees and the disabled.  Despite claiming that they will 'reform' Social Security on a "separate  track, isolated from deficit reduction," the plan includes cuts to  Social Security that would be felt in less than six months, as the plan  calls for a new inflation formula that will reduce benefits by 0.3  percentage points a year compared with currently scheduled benefits. The  plan also calls for a process that is likely to reduce benefits further  for future retirees ..."

The framework that says debt is more important than jobs is fundamentally backwards. The president's deficit reduction plans - and those of the "Gang of Six" - rest on a series of predictions and assumptions about employment, none of which has proved accurate. And based on the past quarter's private sector hiring of only 18,000 workers (far less than the swell of the workforce), these predictions and assumptions will be flat out wrong for the future. The lesson: if employment does not increase no deficit reduction plan will work.

Of course, the tea party faction(s) have so  debased themselves with "no compromise" pledges that no deal may be passable in the House and Senate, even the backup proposal of Sen. Mitch McConnell to punt the entire deficit debate into the election cycle but basically give the president the power to raise the debt limit.

If the backup plan is un-passable, the last alternative for the president is to invoke executive authority under the 14th Amendment to the Constitution, to unilaterally raise the debt limit. The 14th Amendment says:

"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."
Having to resort to this method, however, has some serious side effects whose cost is unknown. First, it could lead to a constitutional crisis over congressional gridlock. Second, it would put into question, for a long time, the real confidence of the world in U.S. economic governance. Interest rates would likely rise significantly, even if the debt ceiling were raised under such unstable conditions.

The Gang of Six deal and the president's basic support of it shows one additional truth in clear light: Working people of the United States, if you want to keep from getting skinned alive in this great struggle now under way - to be truthful, all over the world - you need NOW to get organized. Workplaces, neighborhoods, online - hook up with your friends and co-workers. We need an independent and much broader base, especially within the Democratic Party, to force the national leadership to turn away from austerity, and back toward prosperity.

Photo: GOP Sen. Mitch McConnell speaks on debt ceiling. Robert Daly // CC 2.0

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  • Once again, President Obama shows his willingness to sell out and sacrifice the most vulnerable Americans in the service of the wealthy. Remind me again: why should I vote for this guy's reelection?

    Posted by John Whiskey, 07/21/2011 9:53pm (3 years ago)

  • Personally I like the Mcconnell approach, I trust President Obama with making the "hard" decisions on the economy & debt ceiling then all of these "proposals" by differing & infighting factions of the Republicans bases, the "Tea Party" Republicans refuse to even CONSIDER compromise, the "Gang of Six" proposal is complicated & ill defined (although I must admit a bit of bemusement at seeing Sen. Dick Durbin & Sen. Tom Coburn "working together", look as a disabled Veteran with a wife I CANNOT possibly survive without my monthly check, SOMETHING must be done. If Sen. McConnell wants to "punt" to President Obama to stop a financial Armaggedon, I trust HIM over the G.O.P. (that if it had its way would gut Medicare & Medicaid which millions of my fellow Americans depend on everyday.

    Posted by Jason Duffy, 07/21/2011 3:34pm (3 years ago)

  • The debt "problem" is a fiction created by an accounting error. There is actually NO LIABILITY INCURRED when the federal government borrows in its own currency. (The liability was actually incurred when the dollar to be borrowed was first created. The "borrowing" then is actually only a debt swap; the government is borrowing its own IOU by substituting for it a second IOU.) This has massive significance to the current debate, since the claim that we are "passing this debt to our children" cannot be true since there is no liability created to be passed.

    Posted by Benedict@Large, 07/20/2011 11:21pm (3 years ago)

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