Friday, July 29, 2011

Thoughts on the Debt Limit Controversy

As best I can tell, there are two different games being played. One is the attempt by each side to make sure that either it gets the credit for solving the problem or the other side gets blamed for not solving it. That game is basically about rhetoric and PR.

The other and more interesting game, now that the administration has dropped its demand for tax increases, is about whether or not to raise the limit by enough to get past the next election. From Obama's standpoint, the answer is, I think, obvious. Having the option of deficit spending is almost always a benefit for those currently in power, since it lets them buy votes without obvious cost. Concern with the size of the national debt may have changed that, at least for a while, but I think more likely not. Hence Obama would like to be able to spend as much money as he wants through the election while satisfying demands for fiscal responsibility via cuts, possibly imaginary, in future expenditures. 

The Republicans, on the other hand, would like to be in a position to force real reductions in spending, both because many of them think reductions are a good thing and, I suspect, because many of them think that reductions in spending by Obama will cost him the votes that the spending would have bought him. One way of doing so is to arrange things so that a second increase in the debt limit will be needed before the election, and make their support for such an increase conditional on serious reductions in expenditure—which are not, so far as I can tell, happening on either of the current plans.

There is one other feature of the situation,  one which may explain Obama's failure to hold out for tax increases even while orating in favor of them. An election is coming up, and Democrats to Obama's left have no realistic alternative.

5 Comments:

At 9:00 PM, July 29, 2011, Blogger VangelV said...

The Republicans, on the other hand, would like to be in a position to force real reductions in spending, both because many of them think reductions are a good thing and, I suspect, because many of them think that reductions in spending by Obama will cost him the votes that the spending would have bought him.

I disagree. The Republicans are not all that different than the Democrats and have no real spending cuts in their plans. Each year the government will spend more just as it always has. That will go on until the market figures out that there is no solution other than a massive devaluation that will take the currency down and will cause the standard of living to fall.

Both parties have been run by statists and both have robbed workers and savers of purchasing power through money printing. It is time that the scam was ended and the currency were linked to a commodity of some type by market forces that are allowed to do their work.

 
At 9:32 PM, July 29, 2011, Anonymous Anonymous said...

Obama needs a better economy to get re-elected, so nothing he's doing makes any sense in terms of political self-interest. Maybe he believes his own bullshit about the government being out of money. Who knows?

 
At 7:44 AM, July 30, 2011, Anonymous Anonymous said...

The Republicans are playing a very short sighted game. If the debt level isn't increased by a substantial amount, it could be their next president that is faced with doing the very same thing or an even more unpopular move such as cutting spending on programs that do have votes attached them (Medicare, Medicaid, etc) and thus will cost them dearly.

 
At 9:36 AM, July 31, 2011, Blogger Milhouse said...

Vangel, you are wrong; the Congressional Republicans are being driven by the TEA Party movement, either out of conviction or out of fear of being defeated in a primary; and that movement genuinely is about cutting spending. That none of the current proposals actually cut spending is the result of the fact that the Democrats control the Senate and the White House, so actual spending cuts are not achievable; under that circumstance most Rs are content with merely cutting the rate of growth, if that can be achieved.

 
At 9:37 AM, July 31, 2011, Blogger Milhouse said...

If Obama really thought this sort of showdown made him and the Democrats look good, and the Republicans look bad, then he'd be delighted to have a repeat before the next election. The fact that he's desperate to avoid one proves that he knows it's a loser for him.

 

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