Be Afraid. Be Very Afraid.

I watched Obama's speech about the debt-ceiling crisis tonight, and Boehner's "response." Of course the Republican speech was misleading and not to the point. The point is that the refusal of the Republicans to accept a deal that involves any tax increases has led us to the brink of catastrophe, and Boehner never mentioned tax increases. But Obama's speech was also incredibly self-serving, shallow, and misleading. And I like Obama.
According to the New Republic, previous deals to raise the ceiling have involved about an 80–20 percent mix of spending cuts and tax increases. (Since the Reagan administration.) There have been many such deals, under both Democratic and Republican presidents. George W. Bush raised the ceiling 7 times. When the Republicans held the White House, they never made a fuss about the debt ceiling, and of course the Democrats didn't make trouble for them. The Republicans were so complaisant only to avoid political trouble for their own party, not because Bush was a frugal President; he was madly increasing the deficit any way he could think of. To be fair, the Republicans are now being dragged to extremism by their Tea Party fringe, who claim to have hated Bush's extravagance as much as Obama's. Without fear of primary challenges, the leaders of the Republican Party would have made a deal a long time ago.
Here's what I disliked about Obama's speech:

1. He spent half the speech describing his own proposal and how reasonable it is. Well, yes, it is reasonable in the sense that to reject it the Republicans would have to be rabidly insane.^insane Unfortunately, the fact is, they are. Now what, Mr. President?
2. He mentioned almost as an aside that he would support a proposal by Harry Reid, the Senate Majority Leader. He did not say what this proposal was or why he would support it. He may as well have added, "I'm mentioning this because I promised Senator Reid I would, and I'm a man of my word."
3. He used the word "default" several times to describe what will happen next Wednesday, August 3, 2011. In the middle of that string of occurrences of the word, he added qualifying phrases, so that he said things like "default on our Social Security obligations." But "default" with no qualifiers means "default on one's debts." In fact, it's quite odd to use the word "default," and hit it again and again, when talking of inability to make payments you merely promised to make.
4. He praised Americans in our history who "put country above self, and set personal grievances aside for the greater good [;] who held this country together during its most difficult hours; who put aside pride and party to form a more perfect union." One of the problems he mentioned that had been solved by these Americans was slavery. What speechwriter knows so little about history; and does Obama read these orations before he delivers them? Because I'm pretty sure he knows that slavery required a Civil War to solve, and that we actually remember some of the people who fought it better than those who tried to avoid it.
5. I can't think of a case where a President requested use of the public airwaves for such a blatantly partisan political speech. Perhaps my memory is just blurry. Networks lose money on these Presidential interruptions, not to mention the even-less-often-watched rejoinders from the opposition party. We missed half tonight's Closer for this crap, but a lot of people didn't. The networks no longer cover political conventions very well because they're essentially free ads for the parties. Soon they'll be saying to Presidents, "Just put the statement on your website."

The President's only idea was for people who want a compromise to tell their Congressmen they do. And I'm sure they will, right after The Closer, unless there's something good on TV. The people who write letters and e-messages are the same as those who vote in primaries, the tiny fraction of the populace who are holding us hostage.
Here's why it's so reckless to use the word "default" for partisan purposes: The United States is not going to default on its debts next week. I'm sure some in the Tea Party don't see a problem with actual default, but it would be an even bigger catastrophe than the one they've cooked up for us this time. What will happen next Tuesday is that the government won't be able to pay salaries, Social Security payments, Medicare reimbursements, and other day-to-day expenses that are normally handled by short-term borrowing. One payment it can afford to make, and surely will make, is the interest on its current debts. We don't owe Social Security payments to their recipients. We don't even owe salaries to soldiers, and so forth. It would just be very nice if we could pay them.
Nonetheless, the government will have to tighten its belt catastrophically quickly. If we could literally not borrow another nickel, the budget would be instantaneously balanced. The soldiers would be brought home from Afghanistan, and most other places the U.S. has troops stationed. Social Security would come to an end. Medicare would be tapered off. Etc. One can't predict what exactly will be cut because that's up to the executive branch, i.e., the Obama administration.
The current crisis in Europe revolves around belt-tightening by the Greeks that either will or won't happen. (If it doesn't, the Euro is toast.) The austerity the Greeks would face is nothing to what will happen here next week if we don't raise the debt ceiling. Unemployment will skyrocket if the government stops paying so many people all at once. You can fill in the rest: another Great Depression.
If the debt ceiling is not raised, and these disasters start to unfold, public opinion will swing sharply toward a demand that it be raised, even if a deal means raising taxes. But the damage might have been done. Even though the U.S. will keep paying its loans through next week, and even if the debt ceiling is raised a few days later by a chastened Congress, the world's faith in our political system's ability to function will have been shaken. Our credit rating will suffer, and U.S. debt will be sold short by speculators around the world. People who hold massive amounts of dollars and T-bills will start to unload them. The resulting positive feedback loop will run until our bonds become so cheap investors start to believe their true value has been reached. In this new world, it will become hard for the U.S. government to borrow money. When the government tries to borrow money (i.e., sell bonds) it will be competing for the same money other borrowers are, such as corporations, so the price of money will shoot up for everyone. The result: another Great Recession if we're lucky, but probably worse, since the Tea Party will make it impossible for Obama to spend any money bailing banks out or stimulating the economy. The FDIC will not be able to keep up with the number of bank failures, and will itself declare bankruptcy. Your faith that your $100K bank account is "insured" will evaporate.
Because of the way speculators' minds work, these economic processes may start before the magic date, August 3, 2011, but that date may be viewed as a convenient marker for when the U.S. economy and constitution broke down, as December 7, 1941, is a convenient marker for American entry into World War II.
I say "constitution" because our complacent assumption that our political system is infinitely resilient may turn out to be one of those beliefs that is unquestionable until it becomes false, such as that southern whites would never support the Republican Party. The political system collapsed once before; people have just forgotten how it turned to dust over a period of weeks when Abraham Lincoln was elected. Of course, that was over the issue of slavery, which the Founding Fathers tried to sweep under the rug, and which was fated to come back and destroy the Constitution. It was saved only by a war and the determination of Lincoln and the Republicans to put the Union back together and make slavery unconstitutional once and for all.
If our grandchildren ask, What issue led up to the Crash of 2011?, what will their parents say? Is there anything as momentous as "slavery" that can be blamed? Or is it all trivial: "Historians blame it on television, which made it impossible for someone as ugly, as articulate, and as competent as Lincoln to be elected."^{other-culprits}

End Notes

Note insane The Republicans reject the current package because it includes tax increases. Here's what the "tax increases" consist of: some tax reforms that the Republicans claim to be in favor of that would close all tax loopholes; plus the expiration of the Bush tax cuts in 2013, which is already scheduled to take place. Refusal even to consider accepting these proposals is either incredibly stupid or a devious plot to blackmail the country into making those tax cuts permanent. Either way, it's reckless to the point of insanity.
[Back]
Note other-culprits To be fair, here are some other causal agents to blame: (1) The awful automatic filibuster, in which one party only has to say the word "filibuster" in order to force the other party to find 60 votes to cut off debate. This innovation, which people speak of as if it's been around forever, dates back only to 1992! Both parties like it, because all senators like it, because it puts so much power in the hands of individual senators, who have to be stroked to the point of physical bliss to agree to be the 60th vote. (2) The alignment of the civil-rights movement with the Democratic party, which was responsible for the flipping of the South as mentioned above. As Paul Krugman and Robin Wells, and others have pointed out, the shift of southern whites to the Republicans consolidated conservative voters in a bloc and wed it to some very rich people determined to wreck the New Deal. The southern whites have never hesitated to use the threat of doing something crazy enough to destroy the Constitution to get what they want; but prior to 1970 all they wanted was what the Democrats gave them, namely mastery of the southern not-so-whites. Now they have the money to ask for a lot more. (3) Computer scientists, my colleagues, who put principle aside in order to study the fascinating computational-geometric problem of gerrymandering Congressional districts to the point of absurdity. The resulting one-party districts have done more than anything else to make incumbents invulnerable — except to primary challenges, so that they must shift to the extremes to avoid such challenges. As with derivative securities, the whole system would not work without innovative algorithms, and finding hackers to devise them is no problem at all. No one stops to think that they may be enriching themselves in the short term at the cost, taking a slightly longer view, of destroying the country. Our ethical intuitions, mine not excepted, are stunted.
[Back]