Debt used as a political weapon

Nobel Prize-winning economist Paul Krugman nailed it right away: “Basically the Republicans (said) we’ll blow up the world economy unless you give us exactly what we want, and the president said, OK. That’s what happened.”

Nobel Prize-winning economist Paul Krugman nailed it right away: “Basically the Republicans (said) we’ll blow up the world economy unless you give us exactly what we want, and the president said, OK. That’s what happened.”

The fine print of the last-minute deal between U.S. President Barack Obama and the speaker of the U.S. House of Representatives, Republican majority leader John Boehner, hardly matters. There will be cuts in government spending, or rather in the rate at which government spending was projected to rise, but the big thing is: there will be no tax increase.

That is pretty bizarre in a country with a huge budget deficit and the lowest tax rate in 50 years. The normal response would be to cut spending and raise taxes. Even the Conservative-led coalition government in the United Kingdom, the poster boy for savage budget-cutting, has done that. But not the United States.

True, the deal has averted the imminent prospect of a default on the U.S. government’s debts, which was allegedly going to happen this week unless Congress voted to raise the legal limit on government borrowing (currently $14.3 trillion). On the other hand, the main anticipated penalty for a default, the loss of the U.S. government’s AAA credit rating, may happen anyway, with a consequent rise in the interest rates paid by all Americans.

One could go on like this, discussing how the spending cuts will slow the already faltering U.S. recovery from the recession and keep the unemployment rate very high (over nine per cent), but that is not really the point. It is that the Republicans have discovered a weapon, never envisaged by the constitution, that enables them to force the executive branch to submit on any issue whatever. Just refuse to raise the debt limit.

The weapon has been lying around since 1940, when the original law requiring Congressional authorization for any increase in the national debt was passed, but it has never before been used as a weapon.

Indeed, Congress has voted to raise the debt limit 106 times since 1940, without ever trying to use it as a lever to bring the presidency to heel on other issues. But it is an immensely powerful weapon, particularly as the user does not even need to control both Houses of Congress. Since both Houses must approve the legislation, only one can block it.

It’s not clear whether the radical Tea Party faction in the Republican Party originally came up with the idea of refusing to raise the debt limit until the White House accepted its terms, but they certainly made the running after the Republican Congressional caucus adopted the strategy.

It was the Tea Party that forced John Boehner to drop the idea of agreeing to some tax increases alongside massive cuts in spending in order to bring the budget deficit under control. He is a fiscal conservative, but a sensible politician who understands that in any negotiation there has to be some give and take. The Tea Partiers just wanted take and no give, and they forced him to shift his position.

Then they got greedier, and several times made Boehner demand even more concessions from the White House, presumably in the hope of making the deal so unpalatable that Obama would reject it and allow the country to default. They were certainly ready to accept a default as the lesser evil, since they believed that the immense economic damage it caused would ultimately be blamed on Obama, and cause him to lose the 2012 election.

It must be acknowledged that Obama played his hand extraordinarily badly in all this. As one blogger put it, “Just let me get into a no-limits poker game with him. I’ll walk away a millionaire.”

It should also be recognized that Boehner was quite happy to let the ideological loonies on the far right of his party serve as an excuse for his obdurate stance in the negotiations with Obama. It worked a treat, and Obama basically gave him what he wanted. Or, to be more precise, everything that the mainstream Republicans wanted, although not everything that the Tea Partiers were demanding.

The implications were quite clear in the House vote on the debt limit deal on Monday: 174 Republican voted for the deal, while only 66 (almost all from the Tea Party) opposed it. But the Democrats, outraged by how the cuts that Obama has agreed to (with no new taxes on the rich) will hurt poorer Americans, split right down the middle: 95 for the deal, and 95 against it.

It begins to look possible that Obama could lose the 2012 election. He may even face a battle to be renominated.




Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.



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