Adventures with debt-ceiling Kabuki, cont.

By Felix Salmon
June 23, 2011
pull out of.

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I’m worried about the brinkmanship going on in the debt-ceiling talks which House majority leader Eric Cantor has just decided to pull out of. Cantor’s point seems to be that he is incapable of talking about tax hikes as part of the deficit-reduction negotiations with Joe Biden; instead, the only way such a conversation can take place is if it’s between Barack Obama and John Boehner.

What this says to me is that we’re still very far from the point at which any House Republican — let alone Eric Cantor — is going to be willing to vote for long-term fiscal prudence, as that term is commonly understood. Triggers and ten-year fiscal straitjackets and other such mechanisms are all well and good if your aim is deficit reduction. But Republicans, as we saw most spectacularly during the George W Bush administration, tend to be very bad at reducing deficits, and very good at increasing them. If you vote for tax cuts on a semi-regular basis and you never vote for tax hikes, then no amount of spending cuts is going to get you smaller deficits — especially if Medicare and Medicaid are pretty much off the table.

This is all out of the standard Republican playbook: cut taxes, raise deficits, and leave the consequences to future generations. But now there’s been an important change, in that the Republicans are trying to have their cake and eat it. They can continue to be fiscally irresponsible on taxes, which inevitably means a steadily rising national debt, or else they can start drawing lines in the sand when it comes to the debt ceiling, in which case they have to allow that some tax increases are necessarily going to have to be on the table. But they can’t have it both ways. Hence the punt by Eric Cantor. Something has to give, and he doesn’t want to be in the room when that happens: he’s kicking responsibility over to Boehner instead.

Let’s say the Obama-Boehner meeting happens. If Boehner does give in on taxes — and that’s a big if — then will Cantor and the rest of the House Republicans fall loyally in line and vote for such things? That’s far from a foregone conclusion. And if Boehner doesn’t give in, it’s hard to see how the deficit-reduction plan would have any credibility whatsoever in the markets, since the markets know full well that the deficit can’t be shrunk without some kind of tax hikes.

The whole point of a long-term fiscal plan is to give the markets confidence that the US has its debt situation under control. What I fear is that coming out of these negotiations we’ll end up with a plan which sounds impressive coming out of the mouths of politicians, but which has no real credibility or fiscal force. And that as a result we’ll have even more uncertainty when it comes to future fiscal policy — the exact opposite of what both sides in these negotiations say that they want. And that would be a good outcome, compared to the worst-case scenario where there’s no agreement at all come August 2.

So can someone remind me again why we’re even going through this whole Kabuki? It seems to benefit no one at all.

Update: Boehner’s no more grown up than Cantor is:

“Tax hikes are off the table,” he said. “First of all, raising taxes is going to destroy jobs….second, a tax hike cannot pass the US House of Representatives — it’s not just a bad idea, it doesn’t have the votes and it can’t happen.”


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Like the EU that is kicking the Greek debt can down the road, the US can kick the deficit can down the road too. Until the road finally runs out. I think the US has more road to go than does the EU.

Posted by Chris08 | Report as abusive

No one benefits from this? The Republicans use it as a campaign tool. They don’t actually care about deficits, they only mention them when they are not in power.

Posted by KenG_CA | Report as abusive

One observation I’ve heard many many times regarding Republicans is that they are great at winning elections but are terribly poor at governing – I mean they run on a platform that govt doesn’t work! YA, the way THEY do it… It’s too bad so much of America suffers to be propogandized and can’t see reality when it’s slapping them in the face.

Posted by CDN_Rebel | Report as abusive

They clearly don’t see this gamesmanship as a disaster. Why? They’ve already told us: their real plan is to dismantle Medicare – and then go after Social Security. Worst case for them is that by lying to people to get elected they create the conditions that then “force” them to “make hard choices” which betray the people who vote for them. I wish I were making that up, but all but I believe 4 House Republicans just voted to eliminate Medicare.

Posted by jomiku | Report as abusive

The Republicans either weaken the economy through spending cuts or they really weaken the economy through default. That increases their chances in 2012. That’s a major benefit.

Posted by 3oosion | Report as abusive

Suggest cut military spending until the Republicans pay actual tax to keep their toys. Compared to building roads and whatnot, roaming around the desert is really way down the importance list.

Posted by RichardWatson | Report as abusive

I think you’re making the erroneous assumption that markets give a rat’s ass about the federal deficit. If any market was going to care about the deficit, it would be the bond market. But the bond market is near its all-time low.

Posted by JasonDick | Report as abusive

“the markets know full well that the deficit can’t be shrunk without some kind of tax hikes” — I see TC is a believer in Rational Markets Theory.

“can someone remind me again why we’re even going through this?” — assuming that is not a rhetorical question, I assume that if it were dealt with expediently, the congress might have enough time to tackle real issues; which, might be recognized as an “accomplishment” for incumbents.

Posted by engineer27 | Report as abusive

Felix, you really don’t know?

You don’t think they are willfully sabotaging the economy for the 2012 election?

The last thing we need to spending cuts or tax hikes.

Welcome to 1937. Sponsored by Felix’s boss Peter Peterson.

Posted by petertemplar | Report as abusive

Felix – Where is a safe place to put one’s money in the event of a default…besides under the mattres. I am thinking gold, and currencies of countires with big foriegn reserves (not US foreign reserves)…Norway?

If our debt isnt safe, what is?

Posted by j_schuur | Report as abusive

The last Repub Pres we had in office gave me a stimulus check for $800 while the financial markets were imploding. He gave a lot of other people a lot more stimuli. All this Demo guy we got in there now is giving me is some oil I don’t even need because I’m homeless, jobless and carless. Anybody in there anywhere got any idea what’s really going on out here ..

Posted by Woltmann | Report as abusive

On Thursday the yield on the three month T bill got up to 0.75%. If that isn’t a debt crisis, I don’t know what is. Let’s gut Medicare so we can get the three month T bill down to say, oh I don’t know, 0.25%.

Posted by johnhhaskell | Report as abusive

Excuse me, I meant 0.0075 above post. Imagine how much the Treasury will save if we get yields down to my newly revised target of 0.0025%

Posted by johnhhaskell | Report as abusive