Debt Deals and the Long Game


Cutting through the debt ceiling spin wars is like listening to CONTROL agent Maxwell Smart explain Cold War politics.  “They think they won, but that’s exactly what I wanted them to think… but do they know that I know that they know that I think they lost…?”

The longer any debate rages in Washington, the more obscure the big picture becomes.  Tiny details become huge as our focus zooms in, and we find ourselves debating the fine print leaking from sub-paragraphs.

Take a step back, and consider where both sides stood at the beginning of the debt ceiling debate.  In fact, you’ve got to step back pretty far just to see who the two sides are.

On the one hand, you have the Establishment.  Its component groups have some significant disagreements with each other, but they share a broad conviction that there is nothing wrong with a $14 trillion national debt, or accumulating a great deal more.  Given the ten-year projections that have become so popular during this debate, it could be said that the Establishment has no serious objection to doubling that $14 trillion.  After all, holding it down to $26 trillion in 2021 is supposed to represent a huge compromise on their part.

Not everyone in the Establishment camp is on the far Left, but they dominate its politics, thanks to the purity of their position.  If there’s nothing wrong with doubling the debt, then why wait ten years to do it?  More spending now would bring more “social justice,” through redistribution and public entitlements.  They’re not just uncomfortable with the notion of spending restraint – it makes them angry. 

On the other side of this debate sits the Tea Party.

Everyone knows they want serious fiscal restraint, but their motives are obscured by the constant attempts to caricature them as wild-eyed extremists, hostage-takers, terrorists, greedy millionaires, and so forth.  The Tea Party doesn’t pursue balanced budgets as a fetish, or because they have an irrational disdain for huge deficits and a mountain of national debt.  They aren’t motivated by a burning desire to see old folks and poor people eat cat food.  They believe our rising levels of debt are unsustainable. 

The massive government funded by this wild spending is crushing the economic liberty necessary for healthy growth.  Washington has the private sector by the throat, and is choking it to death in a desperate attempt to make it lay a few more golden eggs. 

This process will accelerate in the coming years.  It always accelerates.  That’s why Congressional Budget Office predictions of fiscal calamity invariable get worse, every time they are revised.  It’s why tax increases absolutely never bring in the promised revenue.  It’s why every economic indicator today is far worse than the “smart set” projected back in 2009.  The federal budget deficit is worse than they predicted, too.

Viewed from this perspective, the budget deal under consideration has not “changed the terms of the debate” or “changed the game in Washington.”  If the Tea Party critique was right all along, then $2 trillion in back-loaded spending growth reductions over 10 years isn’t going to make much of a difference.  We’ll still be in deep trouble… but now the Republicans will have a “big victory,” achieved under pressure from “Tea Party terrorists,” pinned to their chests. 

By portraying this vanishingly small achievement as a mighty rebuke of Keynesianism, the media will set the stage for a huge comeback of Keynesianism.  Very soon – possibly during Obama’s re-election campaign – the debt ceiling compromise will be described as a death blow to the conservative principles it never actually championed.  Here’s a brown paper bag full of hysteria from the New York Times to illustrate how the spin war will be fought:

There is little to like about the tentative agreement between Congressional leaders and the White House except that it happened at all. The deal would avert a catastrophic government default, immediately and probably through the end of 2012. The rest of it is a nearly complete capitulation to the hostage-taking demands of Republican extremists. It will hurt programs for the middle class and poor, and hinder an economic recovery.

It is not yet set in stone, and there may still be time to make it better. But in the end, most Democrats will have no choice but to swallow their fury, accept the deal and, we hope, fight harder the next time.

See what I mean?  A piddling handful of tiny spending concessions – only about $7 billion in immediate reductions, with everything else happening in that magical land known as “the out years” – is “nearly complete capitulation to the hostage-taking demands of Republican extremists.”  It will be blamed for all of the bad things, including a nearly inevitable degrading of America’s credit rating, that it wasn’t bold enough to have a chance of preventing.

We heard a lot of talk from Speaker Boehner about “spending cuts equal to new debt.”  Instead, we get $900 billion in new debt immediately, in exchange for a promise of $900 billion in spending rate reductions over 10 years.  That’s cuts equal to 10% of the new debt the way the rest of us do math.  But this is “capitulation” from Democrats who must “swallow their fury?”

Michael Barone has a piece today called “Republicans Win When the Fight Is Over Cuts Not More Taxes.  But that’s not what we’re fighting over.  Nothing is being “cut” at all.  The rate of increase is being reduced slightly, and described as a “cut.”  If we actually were fighting over real cuts, which would reduce the size of our national debt, we would be winning… but the national debt will increase enormously under this deal.  Trillion-dollar annual deficits will continue.

And as for tax increases, the debt ceiling deal guarantees a huge one, because its CBO scoring is based on the end of the Bush tax cuts.  So, by Barone’s standards, conservatives are losing: we’re not getting any real cuts, and we are getting a tax increase.  This will be spun as a Republican victory responsible for all the negative consequences the Tea Party has warned of all along… and they’ll be told to shut up, because they supposedly got everything they wanted from the Republican moderates they took hostage, and it didn’t work.

Spin and political games don’t change reality.  These half-hearted budget “compromises” will give the Democrats an advantage in the long-term political game.  Meanwhile, America’s loss can be calculated with a spreadsheet.