I don’t like the Tea Party’s social conservatism, but its libertarian impulses are proving to be extraordinarily good for America’s long-term economic health—and Barack Obama’s prospects for reelection.
Barack Obama ought to be crowing right now (and he most certainly is behind the scenes). Thanks to his playing good cop to the Tea Party’s bad cop, he’s gotten his 3 trillion-dollar grand deal in debt reduction. Watch him run on that fact—and without any raising of taxes!—even as he positions himself as the only man standing between the Republicans and draconian cuts to Medicare and Social Security.
Here’s the Christian Science Monitor this morning describing an almost perfect outcome for Barack Obama:
The deal, as outlined by Mr. Obama Sunday night, provides an initial $900 billion hike in the debt limit while also enacting spending cuts at least that robust – a key principle for Republicans. Democrats, who lost the argument, said that revenue increases must be part of deficit cutting to ensure that the burden of raising the debt limit doesn’t just fall on the neediest Americans who rely on government programs.
A second round of spending cuts would be taken up by a new joint legislative committee, which would identify ways to cut the deficit by another $1.2 trillion to $1.5 trillion over the next 10 years. A related $1.2 trillion debt-ceiling hike would be automatic, unless two-thirds of either the House or Senate disapproves. . . .
Under the plan, the panel must report to Congress on its proposed cuts by Nov. 12. Congress then has a month to vote the proposal up or down on a fast track that, as for recommendations of base-closing commissions, bars amendments and filibusters.
All the unpleasantness, in other words, will be shifted over to a joint legislative committee, and there ain’t no way that committee will be overridden by a two-thirds majority of either the House or Senate. What they say, thirty days after they say it, will go.
Of course, President Obama’s grand bargain will be spun, both on the left and the right, in terms that are in turns cynical, sober, and even apocalyptic. But President Obama is smiling big right now (as should be the most sane Tea Partiers). Hard choices about the government’s size and scope have begun to be made. These hard choices were coming over the next ten years anyway, and it’s great that they’re getting started already. When historians look back fifty years from now, and ask how America got its financial house in order after the insane Bush years, the answer will rest with the Tea Party and a liberal President who was willing to bow to the inevitable, then run for reelection on it.
So it’s time to sell your gold and get into stocks. No taxes are being raised and the political agenda for the next decade has been set in a libertarian direction. Barring a new war, the size and scope of government will be reigned in, and its debt as a percentage of GDP will start trending down. This should make business and Wall Street happy. President Obama is Ronald Reagan at the cusp of a Thatcherite-style recovery.
The economy will be roaring next year, and just in time for President Obama’s reelection.
I think it’s a little early to call winners and losers today. The real fight comes later, when the second round of cuts must be found else across the board hacks in spending will ensue.
Two-thirds of the cuts come in December, thirty days after the legislative committee does its work. Left and right will hand-wring, and talk about a bad Christmas present, but neither the House nor Senate will reach the two-thirds to override the committee. America’s financial house will be in better shape because of it. Obama will then be able to run as someone who didn’t raise taxes and compromised his way to real, if painful, debt reduction.
And he’s got the Social Security and Medicare issues to demagogue.
He’s as well positioned as he can be if the economy simply picks up and unemployment starts going in the right direction (and my bet is that they will).
I personally think things could have come out far worse than they did. That being said, I don’t think I’ll be voting for President Obama in 2012. He’s just continued far too many of W’s policies for my taste. The continuation of the Patriot Act, the failure to close Guantanamo Bay (and the humanitarian nightmare it’s always been), and the increase in of troops in Afghanistan all make me cringe. I love Obama as a person, and especially as a speaker, but he seems to willing to bend to the Republican Party, at least for my taste. Don’t even get me started on the corporate lobbyist nightmare that the Healthcare Bill turned into. I think I’ll be voting Green Party. I really hope Cynthia McKinney runs.
Well, at least in my view, your strategy (to vote Green) is an admirable one, but it’s also the one that got us George Bush in the first place. In 2000, those on the left defected to Ralph Nader and that played a crucial role in Gore’s upending in Florida.
Also, I think that, on social issues and foreign policy, Obama’s second term (because he won’t have to run for reelection) will be more liberal, and that’s something, to my mind, worth hoping for. A liberal in a conservative-majority country needs that second term to get some of his less popular things done.
—Santi : )
I think you just touched on the major problem with our political system. I’m guilty of it myself. Here’s what I mean: I really like Cynthia McKinney. She shares the majority of my convictions and views and I feel like she would get things done, but I understand that the Greens (and this is one of the qualities I love most about them) refuse to accept corporate sponsorship so will not have nearly the advertising and campaign power as the Democratic Party, so…she most likely won’t get elected. So I start to think of my vote for the candidate I ACTUALLY want to win as a wasted vote that could go to the Democrats (mainly to avoid electing a right-wing candidate).
While this makes sense, it’s depressing. If we realized that if we followed through on the vote for the candidate who shared our convictions, we might actually get a decent third-party candidate in office.
Since you live in California, and California is not a swing state, you can safely vote for a Green candidate without fretting all that much. If Obama is in a nail-biter close race in California, he’s already sunk nationally.
If you were living in a swing state, the dilemma is more pronounced.
I, by the way, attended either the first (or second, I can no longer recall) Green Party gathering in the United States (in Amherst, Massachusetts). This was way back when dinosaurs roamed the earth. I got sassed by Charlene Spretnak when I made a comment at one of her talks (as an audience member) that she didn’t like. I was not, even then, apparently sufficiently pure for movement politics.
Some of the American Green party old timers might still be around writing books (Charlene Spretnak, Brian Swimme, etc). Murray Bookchin is probably dead.
I remember liking the book by Fritjof Capra titled “Green Politics.” The book kind of got the notion of having a Green political party in the United States going. You can probably find it cheap at Amazon, if you’re curious.
Here’s a link to the book I was thinking of:
I understand what you’re saying but can you see how that mindset only works to keep the nation stuck in corporate politics?
I’ll definitely look into that book. I only re-registered as a member of the Green Party recently and have been devouring as much information as I can find. So far, I’m extremely pleased with my choice.
The current political machinations within your arcane government system are much too hard for a mere Australian to get to grips with. However, your (at any rate, Santi’s) optimism is almost infectious. Almost.
As a cynic, however, I’m not sure that, in the longer term (when, as Keynes said, we are all dead), this will not be seen to have been a missed, last, opportunity for the US to default on its debt with relative impunity.
Notwithstanding regular use of the words “unprecedented” and “financial Armageddon” by reporters over the past weeks, the fact is that the US previously ‘defaulted’ (in all but name), when Nixon announced in 1971 that the US$ was no longer backed by gold at $35/oz.
Having used its printing presses to accumulate most of the world’s gold in Fort Knox and to finance the Vietnam war (and raid war-impoverished Europe of much of its heritage – go look in the Met, The Art Institute, the Frick, et al) the US was not about to allow a reverse flow of hard assets when the rest of the world and its reserve banks started to realise in the late 60’s that the US$ was not “as good as gold”.
The global situation 40 years ago was such that the US could default with impunity. And, like a successful robber baron, that’s what it did. Then, rather than face financial Armageddon the “West” had no option other than to accept the US$ as the de facto global reserve currency. (After all, it did have “In God we Trust” printed on it!) That is still/again the situation today. Europe and Japan are in financial disarray (who wants to hold Euros or Yen?) and the Chinese Yuan is not yet a viable reserve currency.
When China’s economy is sufficiently dominant, however, surely within the next 20 years, it will call on America to actually repay its debts. An act of Economic warfare, perhaps, but a better option than the other sort (where it is unlikely to challenge the USA for several generations).
The prospects of repaying $14t within the next 20 years, without going down the banana republic path, are remote. My advice to the US would be to “clear the decks” and default now, while you can still get away with it! (After first tipping me off, please, so I can short the US$).
(Note to Cody: If the American Greens are as anti-business as the Australian Greens you don’t want to put them into power if you plan to pay off the $14t. Vote for them only after defaulting!)
I simply cannot share your pessimism about the United States for a couple of reasons. First, the country is not currently stuffing its problems and not talking about them. A lot of the shit that Bush and his cronies got away with are no longer happening because things are being talked about now. From torture and blank checks for war to the deficit, the bleeding is slowing. The much greater danger is NOT TALKING. Keynesians are arguing with Friedmanites, for example, and that’s healthy.
Second, it is completely conceivable that the United States could have engaged in Keynesian economics for another decade, running up more debt, before bond markets played the role of the Tea Party and crashed the system. But that’s not what is happening. It appears that the political parties are in the process, though kicking and screaming, toward a more sustainable fiscal path.
And the debt ceiling is not going away. Every year or two, this is now going to come back. And it’s a good thing. It will make the United States leaner and meaner economically.
Also, the key economic number (in my view) is debt as a percentage of GDP. So long as that number starts to level off and come down, the markets will take that as a good sign.
Barring a nuclear terrorist incident—always the joker in the global deck—the global economy (and the American economy) will expand over the next decade.
Third, it’s all about freedom and brain wells (as opposed to brain drains). America has lots of functioning brain wells, from Silicon Valley to MIT. It’s the Saudi Arabia of brain wells and liberty (which always go together). Smart people from around the world want to come to Silicon Valley, for example, and live their lives.
In this sense, we’re far better off than China. If China is to really beat us economically, it will have to expand liberty and let its intellectuals and scientists enjoy complete freedom. One of its Nobel Prize winners, as we speak, is in PRISON. Think about how irrational that is. The low-lying economic fruit is what China is picking now. Someday it will have to release the freedom of its people fully.
As to your first point, that the issues are being discussed, I agree that is hopeful.
Regarding the second, I doubt that the US could have got away with increasing debt for “another decade”. I suspect it was (and still is) much closer to the brink than that. And reducing its debt to GDP ratio (generally agreed currently to be close to 100%) could prove quite politically difficult unless there are a string of years of good economic growth.
As to your third point : My guess is that the political risks that China faces over the next 20 years are probably somewhat underestimated, favouring your optimistic view that the relative competitive strength of USA will be maintained. Conversely, if it overcomes those and remains politically stable, I think that commentators also underestimate just how formidable a competitor China will have become, economically and politically.
Overall, a commitment to reduce debt, rather than simply stabilise it, would have been a bit more convincing. But perhaps you have bought yourself a couple of years before following my recommendation to default (again!)– big-time.
Based on how the news has gone over the past couple of days, you may be right that the US is in deeper debt trouble than I imagine. I may be quite deluded and too optimistic in my analysis. I’ll still hold to it a bit longer, though. I’d still bet that, a year from now, things will be better and Obama will be heading for reelection.
But I admit to doubts.
Here’s a link to the book I was thinking of: