Debt Ceiling: Kabuki Theater of the Absurd

Tuesday evening the House of Representatives voted on whether to raise the so-called “debt ceiling”.  It was pure charade.  No, it’s worse. It’s kabuki theater of the absurd.  First off, the House Republican leadership knows it’s only for show.  The reality is that Congress will vote to raise the limit later this summer.  They have no choice.  The whole concept of the debt ceiling is absurd and likely unconstitutional. Let’s see the news itself, this taken from ABC News:

The House of Representatives rejected an increase to the statutory debt limit in a move chastised by Democrats as “a political charade,” “political cover” and “political theatre.”

The measure, which failed by a vote of 97-318 with seven members voting present, stated that “the Congress finds that the President’s budget proposal, Budget of the United States Government, Fiscal Year 2012, necessitates an increase in the statutory debt limit of $2,406,000,000,000,” and would have raised the debt limit to $16.7 trillion.

All 236 Republicans voted against the increase – joined by 82 Democrats. 97 Democrats voted yes for a debt limit increase, while 7 Democrats voted present.

The bill required a two-thirds majority to pass.

Why was it a charade? Because the Republican leadership designed it to be a fake.  This from Time mazazine’s website (bold emphasis is mine) just before the vote:

Not be a spoiler, but Tuesday evening’s House vote to increase the federal borrowing limit by $2.4 trillion without preconditional spending cuts will fail. It was designed that way by the Republican leadership: They used a procedural trick to require a 2/3 majority for passage and told every member of their caucus to vote against it. The idea, they say, was to prove to the world (and congressional Democrats) that raising the debt ceiling won’t happen without a package of accompanying spending cuts.

Mission accomplished: President Obama has been admitting as much for weeks and House Democratic Whip Steny Hoyer on Tuesday recommended that Democrats join Republicans in voting down the “clean” debt limit measure. “My advice to them would be not to play this political charade,” he said. Of course, the failed vote is the charade. Time to play spoiler again: Congress will raise the debt ceiling by the end of the summer. Tuesday’s failed vote only serves to provide political cover for members of Congress who will eventually back the incredibly unpopular increase in borrowing capacity.

Now supposedly Wall Street and the financial markets understand that Congress isn’t really serious about intentionally defaulting on U.S. bonds.  The New York Times in it’s report on the vote:

“Wall Street is in on the joke,” said R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

So the whole point is so that members of Congress can claim on the campaign trail that they voted against the debt ceiling increase when in fact they are also going to vote for it later this summer.  Absurd.  Pure theater. It’s all political pretend.

Beyond the politics, though, the economics is even more absurd.  First, the concept of a “debt ceiling”, a law that saws the government cannot borrow more than say $x dollars is absurd.  How much the government needs (or chooses) to borrow is basically already decided by legislation already passed that goes by the name “budget”.  Congress voted a budget not two months ago that requires, under current rules, more borrowing.  Now Republicans are claiming they don’t want to borrow the money they already committed themselves to borrow.  Got that? So are you following so far?  The House Republican leadership schedules a vote that it knows must fail (that’s why the special 2/3 requirement).  Why? So it can tell one thing to voters on the campaign trail while letting Wall Street “in on the joke”.  We have the best government Wall Street can buy.

But it’s doubly worse than just the lies they’re presenting to voters.  It’s all over what should be a non-issue.  Normally, I don’t like analogies between government and a household because such analogies don’t usually hold up very well.  Government, unlike a household, is not inherently budget-constrained.  But let’s try a simple analogy anyway.  Suppose you put together a budget for your household.  You project or know that you are going to earn $1000 per month.  So income is $1000.  Then you decide that you need to spend $1500 per month in outlays.  You have no savings. You are going to have deficit of $500 per month.  No problem, you have a credit card.  You can borrow to finance the deficit*.  Let’s suppose your credit card account has no credit limit.  The bank is saying you can borrow as much as you like.  In fact, the bank right now is telling you that you are such a good credit risk that you only have to pay 3% interest rates.  Under this scenario there’s no problem, right?  You need the extra $500, you borrow it.  The credit card balance goes up.  But there’s no limit to how high it can go.  That would be the government’s ordinary, constitutionally-mandated budget making process.

But sometime ago Congress decided to add another wrinkle.  It passed a “debt ceiling” law.  Supposedly this is another law, that independent of whatever the budget says, will limit how much total debt the government can have outstanding at one time.  Using our analogy, this is like the head of your household saying that they refuse to borrow more than $x on the credit card, regardless of what they previously said was their budget.  So two months ago, Congress passed the budget with a deficit.  It told the government to buy lots of things and not to collect very much taxes.  Now Congress wants to say they won’t pay.  Huh?  In the private world, this is called an unnecessary, voluntary default.

Yes, that’s what this vote says.  The Republican leadership has just told the world that they actually want the U.S. to default on bonds now!  There’s no economic reason why we need to default.  The financial markets are saying they actually want to lend money to the U.S. at record low interest rates.  The financial markets have long been saying they have no fears about the ability of the U.S. to pay in the future.  No matter. The House Republicans want to default just for the heck of it.  Well, actually it’s not for the heck of it.  They are holding the entire U.S. budget hostage, including payments to seniors, soldiers, and Medicare, because they want to change the future of Medicare and Social Security.  They want to end to programs and privatize everything for the benefit of Wall Street.  Such an agenda is hugely unpopular, so the Republicans can’t do it directly.  Instead they have to create a fake crisis about the public debt, hold a fake vote, and threaten national insolvency to get their way in cutting Medicare and Social Security.

*The whole issue is even more absurd when we consider how my analogy breaks down.  The analogy breaks down because the government doesn’t have to borrow to finance a deficit – it can just spend the money by creating new “high-powered money” which are also called bank reserves.  When the government spends, it just writes a check off the Federal Reserve bank.  It doesn’t have to have “money” in the checking account first.  When The Fed “cashes” the check, it pays your commercial bank with “bank reserves”.  Bank reserves aren’t really “money” in the public’s hands yet, but they can be thought of as “potential money”.  Unlike the primitive days of a century ago, there’s no artificial limit on how much can be spent.  There’s no gold standard.  (that’s a good thing!).

I do believe this is all theater of the absurb.  But it’s dangerous theater. I still believe that when the time comes this summer, Wall Street will call the political leaders and tell them enough’s enough, raise the limit and avoid default.  A default is much too dangerous to contemplate.  A default by the U.S. could bring economic disaster globally.  There’s always the possibility that these folks in Washington dig in their heels and let their egos get the best of them.  They don’t understand what they’re playing with, but that’s never stopped them before.
In the meantime, we’re treated to the spectacle of House Republicans claiming they would prefer the U.S. default now because they’re afraid that without big emergency spending cuts the government will end up defaulting at some point in the future.  Default now to avoid default in the future.  Yeah, I call that absurd.

Pity the Rich and Powerful – Won’t You Help?

Hugh Pickens at Slashdot reports how a Wisconsin Congressman has been complaining that it’s tough to make ends meet on his meager $175,000 congressional salary (complete with extensive benefits including healthcare, defined benefit pension, paid staff, etc).  But once a video got out of him complaining about his low pay (which is more than 3 times the average of the people he represents), it seems the Republican party in his home county want to recall the video and threaten anybody who shows it with copyright infringement.

“The Examiner reports that Wisconsin Republicans claim that no one else can republish a video of United States Representative Sean Duffy (R-WI) complaining about how he is ‘struggling’ to get by on his $174,000 salary without their permission, even though they originally released the video on YouTube for the whole world to see and now the GOP is trying to take legal action to stop anyone else from republishing the video. The tape caused a stir for Duffy, a first-term conservative best known for his past as a reality TV show star on MTV’s The Real World after Democrats flagged the comments about his taxpayer-funded salary which is nearly three times the median income in Wisconsin and criticisms began to flow Duffy’s way. Here’s a one-minute clip, excerpted from roughly 45 minutes of video of the public Duffy townhall, that the Polk County GOP doesn’t want anyone to see.”

In the interest of helping, some in Wisconsin are asking for donations:

Congressional – FAIL economics

In a previous post I noted that members of Congress usually don’t understand economics at a level to even pass a Principles Econ 201 or 202 course.  More proof from Pat Garafalo of Think Progress.  Apparently Rep. Shadegg of Arizona, a Republican representative for at least 5 years doesn’t understand that consumer spending is essential to the creation of jobs.  He believes that maintaining spending by unemployed people doesn’t have any positive effect on the economy.  Instead he believes in some kind of mythic “job creators” in our economy who apparently create jobs without any consideration of being able to sell what is produced by the workers!  Of course maybe the Congressman is simply a little behind in his reading.  I mean we only figured out this concept of a circular flow and the need for consumer spending to exist for there to be jobs recently, as in, oh, 1829 at the latest.

Rep. Shadegg Scoffs At The Fact That Jobless Benefits Are A Benefit To The Economy: ‘No, They’re Not!’

Unless Congress acts today, unemployment benefits will expire for 2.5 million Americans, with unemployment above nine percent and five unemployed workers competing for every available job opening. If Congress, as expected, does nothing, this will be first time in the last forty years that benefits have expired with unemployment so high.

According to calculations by the Congressional Budget OfficeMoody’s Economy, and myriad other economists, unemployment benefits are the single best way to pump money into the economy and generate economic activity, as the unemployed are very likely to spend all of the benefits they receive (thus moving money into local businesses). But during an interview with MSNBC’s Mike Barnicle today, Rep. John Shadegg (R-AZ) scoffed at the notion that unemployment benefits help the economy. “Unemployed people hire people? Really? I didn’t know that,” Shadegg jeered:

BARNICLE: What about the fact that unemployment benefits pumped into the economy are an immediate benefit to the economy? Immediate…

SHADEGG: No, they’re not! Unemployed people hire people? Really? I didn’t know that.

BARNICLE: Unemployed people spend money Congressman, ’cause they have no money.

SHADEGG: Aha! So your answer is it’s the spending of money that drives the economy and I don’t think that’s right. It’s the creation of jobs that drives the economy…Actually, the truth is the unemployed will spend as little of that money as they possibly can. Job creators create jobs.

BARNICLE: Have you ever been unemployed? Have you ever been unemployed?

SHADEGG: Yes, I have.

BARNICLE: What did you do with the money? Save it?

Watch it:

At the same time that he was dumping on the unemployed, Shadegg called for extending all of the Bush tax cuts without paying for them, joining a slew of Republican lawmakerswho care more about tax cuts for the very wealthy than unemployed Americans about to lose the last strand of safety net that they have available.

Shadegg never managed to explain why all of the job creators he cites would create any jobs if households aren’t spending money. In that vein, MarketPlace noted today that “when unemployment checks stop, it’s felt right away by businesses like gas stations, apartment operators, and grocery stores.” And as the Center for American Progress’ Heather Boushey and Jordan Eizenga found, “the workers losing benefits have an average weekly benefit of a little over $290 per week, which translates into a total loss of about $2.5 billion dollars in benefits over December. This is equal to about one in seven dollars of the gain in retail sales seen between December 2008 and December 2009.”