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The Economy, Stupid

by on July 17, 2011

The Economy, Stupid is a great text-based game that simulates four years of a mythical medium-sized country, with you in control.  Perhaps more non-mythical elected representatives should play the game, because you get to discover what happens to the economy when the global economy is good and bad, what happens when you  raise taxes and lower taxes, what happens when you raise and lower benefits to the unemployed and retired, and what happens when you fund or defund the public sector.

The Economy, Stupid, is a simulation, true, but certain realistic things happen.  Guess what happens when you reach a maximum debt level, and are forced to balance the budget (as opposed to slowly decreasing the level of debt and lowering debt under the maximum level)?  You guessed right: unemployment increases drastically, approval ratings drop drastically, less money enters the economy because you have been forced to balance the budget by cutting funding and raising taxes at the same time to create a positive budget.

Does this future world sound familiar to you?  The United States reached it’s debt level at $14.29 trillion on May 16, but the US Treasury is using “extraordinary measures” to prevent default until August 2.  Congress has been debating how to fix the debt since June, with the Republicans suggesting drastic changes to Medicare and Social Security – big changes that the Democrats signaled “they would allow for some changes to the retirement insurance program, provided they be on the delivery-side as opposed to the beneficiary side,” which nonetheless would have little impact on improving the debt.  Democrats are asking for an end to subsidies to large companies, while ” House Speaker John Boehner (R-Ohio) has said the lower chamber will not approve” any measure involving tax increases.

No wonder Obama is frustrated.  He doesn’t get mad often, and like all calm people, when he gets mad it is a spectacular sight.  On Wednesday he told the Republicans “’It cannot all be on us,’” arguing that Republicans need to give on the revenue side of things as Democrats are willing to do so on spending cuts.”  Which, of course, they are loathe to do.  Obama said in the meeting, to his credit “‘I have reached the point where I say enough,'” according to Reuters. ‘Would Ronald Reagan be sitting here? I’ve reached my limit. This may bring my presidency down, but I will not yield on this.'”

Nate Silver, who created a name for himself with extremely accurate predictions of the 2008 elections, and other things since (such as the Emmy’s, and sports players), has quite a bit to say on Republicans in federal office, and Republicans generally.

However, all but 7 Republicans in the House of Representatives, or 97 percent of them, have signed the pledge of Grover Norquist’s Americans for Tax Reform stating that any net tax increases are unacceptable. One might have believed this to be simply a negotiating position. But the proposal that Senate Republican leader Mitch McConnell floated yesterday, which would give up on striking a deal and instead rely on some procedural gymnastics to burden Mr. Obama with having to raise the debt ceiling, suggests otherwise. Republicans in the House really may be of the view that a deal with a 3:1 or 4:1 or 5:1 ratio of spending cuts to tax increases is worse than none at all.

If we do take the Republicans’ no-new-taxes position literally, it isn’t surprising that the negotiations have broken down. Consider that, according to the Gallup poll, Republican voters want the deal to consist of 26 percent tax increases, and Democratic voters 46 percent — a gap of 20 percentage points. If Republicans in the House insist upon zero tax increases, there is a larger ideological gap between House Republicans and Republican voters than there is between Republican voters and Democratic ones.

There is also a large gap between the GOP establishment and the Tea Partyers who crashed the party party last November and quickly found they had to be part of the establishment. Steve Bell, Steve Bell is former Staff Director of the Senate Budget Committee, and now Senior Director on Economic Policy at the Bipartisan Policy Center – writes about the debt negotiations.  “Chairman [of the House Financial Services Committee, Spencer] Bacchus hardly qualifies as a RINO nor is he considered a renegade Republican.  His remarks, therefore, may well hint that the many senior members of the House Republican caucus are beginning both to tire of the ideological rigidity of some of their “Tea Party” members and to believe that it is time to stop playing games with the debt limit negotiations.”

NPR continues the discussion about the split within the Republican Party.

The split between Obama and Republicans is nothing compared to the gap between GOP leaders and their Tea Party fueled rank and file. Top congressional leaders appear to have essentially painted themselves into a corner between Obama on one side and the just-say-no bloc of House Republicans on the other.
That the warnings [of Republican leaders that it’s time to compromise] seem to be going unheeded is leaving many people with a sinking feeling.

For those with a good memory, including the Republicans, NPR is good enough to remind us that Mitch McConnell, Republican minority leader in the Senate, knows well that the government shutdown in 1995 produced bad results for Republicans in the following election. History has a tendency to repeat itself.  Senator Lindsey Graham also knows just how dangerous political tactics are.

“Our problem is we made a big deal about this for three months. How many Republicans have been on TV saying, ‘I’m not going to raise the debt limit.’ You know, Mitch [McConnell] says, ‘I’m not going to raise the debt limit unless we talk about Medicare.’ And I’ve said I’m not going to raise the debt limit until we do something about spending and entitlements.’ So we’ve got nobody to blame but ourselves,” Graham told reporters after a GOP caucus lunch.

“We shouldn’t have said that if we didn’t mean it.”

Part of the confusion, according to a Reuters article, is that Republicans don’t know who’s in charge. They are all Chiefs with no Indians, thinking that they each know best and represent the party leadership; at the same time they are all Indians and no Chiefs, not quite sure of who the leader is or whether they are being represented to the negotiations. It all makes for a lot of clamoring. Representative Pete Sessions thinks there will be no deal until August(!); Speaker of the House Boehner is being advised by other representatives that a default won’t be a bad thing. Eight Republican presidential candidates – not all of whom hold office – said they won’t back any increase in the debt ceiling.

Democrats and Republicans, the Department of the Treasury, and the IMF, all have their own interests in mind.  Some are more willing to compromise than others.  Tim Geithner, Treasury Secretary, doesn’t have a lot of room  to compromise.  He does his job, and he wants to keep his job; he has his own interests in mind.  He joins a long list of people who understand the economy, or at least know how it can be manipulated, in saying that “consequences would be catastrophic” if the US defaults.  Much as in The Economy, Stupid, “interest rates [would spike] on U.S. debt and the government [would have] to decide who it won’t pay, from senior citizens to the unemployed, to government contractors and whole branches of government. Many economists fear it would spark a new recession.”

Senator Bernie Sanders, the only Independent in the Senate, has a penchant for giving powerful speeches. This time he didn’t give an eight-hour filibuster speech – a fascinating story, but he managed to say important things in ten minutes.

Our right-wing friends in the House of Representatives have given us an option. What they have said is end Medicare as we know it and force elderly people, many of whom don’t have the money, to pay substantially more for their health care. So when you’re 70 under their plan and you get sick and you don’t have a whole lot of income, we don’t know what happens to you. They forget to tell us that if their plan was passed you’re going to have to pay a heck of a lot more for the prescription drugs you’re getting today. They we’re going to throw millions of kids off health insurance. If your mom or dad is in a nursing home and that nursing home bill is paid significantly by Medicaid and Medicaid isn’t paying anymore, they forgot to tell us what happens to your mom or dad in that nursing home. What happens?

And what happens today if you are unemployed and you’re not able to get unemployment extension? What happens if you are a middle-class family desperately trying to send their kids to college and you make savage cuts to Pell grants and you can’t go to college? What does it mean for the nation if we are not bringing forth young people that have the education that they need? They forgot to tell us that. And if you are one of the growing number of senior citizens in this country who are going hungry, they want to cut nutrition programs. And on and on it goes. Every program that has any significance to working families, the sick, the elderly, the children, the poor, they are going to cut in the midst of a recession when real unemployment is already at 15 percent and the middle class is disappearing and poverty is increasing. That’s their idea.

Shouldn’t the wealthiest Americans and the most profitable corporations contribute to deficit reduction rather than just the elderly and the sick and working families? They say no. They’re going to defend the richest people in this country — millionaires and billionaires — and make sure they don’t pay a nickel more in taxes. We’re going to make sure there is no tax reform so we can continue to lose $100 billion every single year because wealthy people and corporations stash their money in tax havens in the Cayman Islands or Bermuda, and that’s just fine. We’ll protect those tax breaks while we savage programs for working families.

No one is to blame, yet.  There are a little more than five days to July 22, when a deal needs be reached “to get it through Congress in time.”  However, several polls have already been conducted about who people would blame, if the US defaults.

In a poll conducted by Quinnipiac University from July 5-11, when asked to whom they would assign responsibility should the limit not be raised, 48 percent of respondents chose the congressional Republicans; 34 percent said they would blame the Obama administration.

These results echo a Pew Research Center poll conducted from June 16-19 which asked the same question as the Quinnipiac poll. According to that survey, 42 percent of respondents said they would blame Republicans in Congress if the debt ceiling were not raised; 33 percent chose the Obama Administration.

The findings highlight the political repercussions that the GOP could confront should default occur.

We’ve been told before that post-apocalyptic economies are coming our way soon (and while it’s true that our economy sucks, we’re not quite post-apocalyptic yet). I imagine we heard that in 1995. And we sort of heard that in 2000, with the dreaded Y2K. We heard it when the tech bubble collapsed. When the housing market collapsed completed its collapse in 2008, we got close. We’ll never know what happened, because after the Dow Jones Industrial Average fell 777 points congress agreed to past the Troubled Asset Relief Program (TARP), which it had failed to pass days earlier. And so, House minority leader Nancy Pelosi has suggested that maybe Republicans need to see the market fail again before they try to fix it, with the commonplace act of raising the debt ceiling.

The polls suggest that people will blame the Republicans, and that’s likely, because at the moment people are likely to blame whoever they voted into office for not fixing things.  But Republicans aren’t always the ones that are blamed.  In 2010 it was the Democrats; in 2008, and previously in 2006, it was the Republicans.  TARP passed, but it seems to have made people understandably, but unjustifiably, mad.

Wall Street is too abstract and the financial games that brought on the Great Recession almost impossible for most Americans to grasp. But the government bailout of the Street was a specific act almost everyone could instinctively understand — and to most Americans it seemed perversely wrong.

That’s what Robert Reich, professor at UC Berkeley and former adviser to Bill Clinton says about the economy.

A recent paper by Cornell political scientist Suzanne Mettler surveyed how many recipients of government benefits don’t really believe they have received any benefits. She found that over 44 percent of Social Security recipients say they “have not used a government social program.” More than half of families receiving government-backed student loans said the same thing, as did 60 percent of those who get the home mortgage interest deduction, 43 percent of unemployment insurance beneficiaries, and almost 30 percent of recipients of Social Security Disability.

Government is such an everyday part of life that people don’t recognize it. We need it. We can work in positive integers and have a government too.

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From → Economy, US Politics

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