We have a potential catastrophe of national default, an event whose consequences are unknowable but which could quite easily wreck the US and global economies, profoundly damage people's savings, raise interest rates and destroy jobs for a very long time. In most countries, the goal of the entire political class is to avoid such a thing if at all possible. Greece is currently facing down riots in order to slash its deficit. Britain is entering a period of profound austerity. All of this pain is to prevent the worst possible crisis to hit a country: default. All responsible politicians understand this is something to be avoided at all costs. Conservatives especially see any weakening of the full faith and credit of sovereign governments or the EU as very destabilizing to growth and democratic stability.
So here we are in the USA, with our own awful debt crisis, and the possibility of default and one of the two major parties is saying effectively: bring it on. Even more amazing, it is the conservative party that seeks the collapse of the global economy if they do not get their way on every single thing.
Some sane Republicans (Coburn) are absolutely right in my view that spending needs to be cut deeply, broadly and permanently to get us back on track, that Medicare is at the center of the problem and that corporate welfare is at obscenely high levels. I favor a plan along Bowles-Simpson lines that would truly transform the long-term fiscal outlook, while treading a little gingerly in the next year or so.
But I am also an adult and understand that in the American political system, this kind of package has to win support from House, Senate and president to pass. There will have to be compromise. At a time, moreover, of extreme economic pain in many parts of the country, after a period in which the successful have become relatively richer than everyone else than at any point in recent decades, the sacrifice should surely be shared. You can do this by emphasizing many more spending cuts than tax increases – something I'd favor and something that the British Tories have put into effect. But it is simply insane to believe that the deal can be only tax hikes or only spending cuts and make it through the political process.
For the GOP to use the debt ceiling to put a gun to the head of the US and global economy until they get only massive spending cuts and no revenue enhancement is therefore the clearest sign yet of their abandonment of the last shreds of a conservative disposition. A conservative does not risk the entire economic system to score an ideological victory. That is what a fanatic does. And when that fanatical faction was responsible for huge spending binges in the recent past, for two off-budget wars costing $4.4 trillion, a new Medicare benefit, and tax revenues at a 50-year low relative to GDP and tax rates below the levels of Ronald Reagan, this insistence is lunacy, when it isn't gob-smackingly hypocritical. I say this as someone who was railing against too much spending when these people were throwing money away like it was confetti. "Deficits don't matter," remember?
It seems to me there are two options the president can take. The first is what you are told to do when a criminal or terrorist holds a gun to your head. You surrender.
The point of economic blackmail is that it works. If you have a scintilla of public responsibility and you hold public office, you cannot allow default. And so you give them everything they want. You announce this while declaring you abhor the package but have to back it for the sake of the national interest in preventing catastrophe. You detail and expose the Republican priorities far more aggressively than in the past. You blame the performance of the economy entirely on them from now on out. And you run on a platform of shared sacrifice – of revenue-enhancing tax reform and tax hikes for millionaires. Then you run against the Republicans as hard as you can.
The second option is to bypass them, invoke the 14th Amendment, and order the Treasury to keep paying its debts because an extraordinarily reckless faction wants to destroy the American economy in order to save it (and pin the subsequent double-dip recession on Obama). Bruce Bartlett outlines the mechanism here. He has some other ideas for coping here.
What you probably cannot do is negotiate with economic equivalent of terrorists. What Cantor and Boehner are doing is essentially letting the world know they have an economic WMD in their possession. And it will go off if you do not give them everything they want, with no negotiation possible. That's the nature of today's GOP. It needs to be destroyed before it can recover.
(Photo: Speaker of the House John Boehner participates in his weekly press briefing on Capitol Hill, June 23, 2011 in Washington, DC. By Mark Wilson/Getty Images)