But we do have the March sequestration and continuing resolution deadlines for Congress to decide on. And the argument is still largely framed by both parties as an argument over how much austerity to impose on a still-weak economy.
Sam Stein et al report in 2013 Sequestration Likely To Happen Despite Ominous GDP Report Huffington Post 01/31/2013:
Recently, House Republicans' mindset has changed. Upset over deals that raised both tax rates and the debt ceiling, they began looking at sequestration as bankable spending cuts. The approach is driven, in part, out of the belief that the White House will eventually cut a deal favorable to the GOP (administration aides have been privately warning about the economic ripple effects of the sequester being triggered). But it has also caused concern among the party's defense hawks.But the make-Grandma-eat-catfood crowd are still out to cut benefits on Social Security, Medicare and Medicaid ("entitlement reform," in their preferred propaganda term). Susie Khimm in How’s the deficit doing? Depends on your timeframe. Wonkblog 01/29/2013 reports on a recent analysis by the Peterson Foundation which promotes their favorite hobby horse of opposing Social Security, Medicare and Medicaid.
"I'm concerned about sequestration kicking in," Sen. John McCain (R-Ariz.) said on Wednesday. "My greatest concern of all is the president of the United States being missing in action. The president of the United States during the campaign said the sequester won't happen. Well, what's he doing about it? His own secretary of defense has said that it would be devastating to national security, and I agree with that."
Stein piece quotes one of the prominent deficit hawks, Peter Orszag, on the supposed urgency of cutting those programs:
"Both before and after the report, the right approach was and is the barbell (upfront stimulus, delayed austerity, as a package)," emailed Peter Orszag, the former head of President Barack Obama's Office of Management and Budget. "Implementing sequestration is completely inconsistent with that framework ... The report ups the odds slightly of avoiding sequestration, but the base case still (unfortunately) is that it takes effect."Mike Konczal explains in Morning Joe vs. the Barbell Rortybomb 01/29/2013 what the "barbell" approach is, i.e., insisting that long-term cuts in Social Security, Medicare and Medicaid be made at the same time any short-term stimulus is enacted:
Orszag's skepticism seemed justified as Republicans called for further austerity. White House Press Secretary Jay Carney on Wednesday argued that sequestration should be replaced with a "balanced" mix of spending cuts and revenue raisers, pointing to the alternative plan the administration offered in September 2011. [my emphasis]
This is often referred to as a "barbell strategy" (from a Peter Orzag column). Do stimulus, do long-term deficit reduction, but only if you can do them together. As mentioned by the panelists, this is part of several bipartisan debt reduction strategies. Here's Domenici-Rivlin's Restoring America's Future Plan: "First, we must recover from the deep recession that has thrown millions out of work... Second, we must take immediate steps to reduce the unsustainable debt... These two challenges must be addressed at the same time, not sequentially."Konczal goes on to explain why the arguments in favor of such an approach are a crock. He recalls a quote from John Maynard Keynes, "It is the burden of unemployment and the decline in the national income which are upsetting the Budget. Look after the unemployment, and the Budget will look after itself."
When recessions and depressions happen, unemployment goes up and economic activity goes down, bringing down tax receipts and raising expenditures on automatic stabilizers like unemployment insurance and food stamps. That drives the deficit up. Get economic activity up and unemployment down, and those factors then push the deficit more toward surplus.
There is also a significant trade factor in the deficit. Because it's a basic accounting identity in national income accounting that the combined deficits and surpluses of the domestic private and public sector equals the trade deficit or surplus. Since the dollar is the world's reserve currency and is likely to be for the foreseeable future, other countries will hold a certain amount of dollar reserves and will keep the US trade balance in deficit. So until the domestic private sector has years when it's investigating amounts greater than domestic private earnings, the federal budget will stay in deficit.
Khimm quotes Jared Bernstein on the scare tactics at work here with the "barbell" approach:
It's "mostly scaremongering — way too dismissive of progress made so far and over-emphasizing the very long term," says Jared Bernstein, a former White House economics adviser and CBPP senior fellow. Instead, Bernstein believes that we first need to stabilize the debt over the next 10 years, as the Obama administration is looking to do, rather than simply taking a hatchet to government services and sacrificing near-term growth.Supporters of Social Security, Medicare and Medicaid were obviously encouraged when Obama defended the Big Three programs in his Second Inaugural Address: "The commitments we make to each other through Medicare and Medicaid and Social Security, these things do not sap our initiative, they strengthen us. They do not make us a nation of takers; they free us to take the risks that make this country great."
But within days of that speech, in an interview with The New Republic (Franklin Foer and Chris Hughes, Barack Obama is Not Pleased The president on his enemies, the media, and the future of football 01/27/2013, he was also sticking with his immediate pre-election faith that the Republicans would become more reasonable and would be ready for technocratic bipartisan cooperation:
I never expected that it would happen overnight. I think it will be a process. And the Republican Party is undergoing a still-early effort at reexamining what their agenda is and what they care about. I think there is still shock on the part of some in the party that I won reelection. There's been a little bit of self-examination among some in the party, but that hasn't gone to the party as a whole yet.Getting through the last Congressional session without any cuts in benefits to Social Security, Medicare and Medicaid was a real win for supporters of those programs, i.e., big majorities of the public. But we aren't out of the woods on that issue this year.
And I think part of the reason that it's going to take a little bit of time is that, almost immediately after the election, we went straight to core issues around taxes and spending and size of government, which are central to how today's Republicans think about their party. Those issues are harder to find common ground on.
But if we can get through this first period and arrive at a sensible package that reduces our deficits, stabilizes our debts, and involves smart reforms to Medicare and judicious spending cuts with some increased revenues and maybe tax reform, and you can get a package together that doesn't satisfy either Democrats or Republicans entirely, but puts us on a growth trajectory because it leaves enough spending on education, research and development, and infrastructure to boost growth now, but also deals with our long-term challenges on health care costs, then you can imagine the Republicans saying to themselves, "OK, we need to get on the side of the American majority on issues like immigration. We need to make progress on rebuilding our roads and bridges." [my emphasis]
Bob Kuttner in The President's Running Room—and Ours The American Prospect 01/18/2013 describes how the win on the Big Three during the debt ceiling fight came about:
Labor was key to the Obama re-election campaign, spending several hundred million dollars and providing many thousands of hours of volunteer effort. In contrast to 2008, the AFL-CIO and individual unions such as the NEA, SEIU, and AFSCME kept their campaign organizers mobilized in the weeks after the election to fend off a presidential capitulation on two key issues. They demanded: keeping the commitment to raise taxes on the rich and a firm defense of Social Security, Medicare, and Medicaid. Some observers found it odd that labor emphasized these issues rather than making a push on jobs, but the reasoning of AFL-CIO President Richard Trumka was that these battles were the Democratic high ground. If Obama hung tough on them, he would achieve a major victory, weaken Republicans, and avert a disabling fiscal deal. With some wiggle room preserved in the budget, it would be easier to come back for jobs spending later.Tags: austerity economics, barack obama, grand bargain, medicaid, medicare, social security
Labor's strategy was not to implore Obama but to get firm commitments out of House and Senate Democrats not to vote for any budget deal that cut Social Security and Medicare or failed to raise taxes on the well-to-do. Washington lobbyists can't always get a meeting, but key leaders from back home can. The week after Thanksgiving, union leaders from 33 states met with most of the House and Senate Democratic caucus, noted which Democrats were equivocal, and followed up with pressure on wavering Democrats in their districts. The Capitol Hill lobbying by local labor leaders, bolstered by a strong presence back home, strengthened the collective spine of the congressional party, which was already somewhat to Obama’s left, making it more difficult for the president to cave. Although the unions did not get everything they wanted, their actions demonstrated how a grassroots presence combined with shrewd Washington lobbying can exert influence. [my emphasis]