The phony "fiscal cliff" and the fight to save Social Security, Medicare and Medicaid

Paul Krugman writes of Obama's sad record in caving to Republican demands, which he looks willing to do once again the same week he received a strong mandate to fight against the Republicans (Let's Not Make a Deal New York Times 11/08/2012):

... Republicans are trying, for the third time since he took office, to use economic blackmail to achieve a goal they lack the votes to achieve through the normal legislative process. In particular, they want to extend the Bush tax cuts for the wealthy, even though the nation can’t afford to make those tax cuts permanent and the public believes that taxes on the rich should go up — and they’re threatening to block any deal on anything else unless they get their way. So they are, in effect, threatening to tank the economy unless their demands are met.

Mr. Obama essentially surrendered in the face of similar tactics at the end of 2010, extending low taxes on the rich for two more years. He made significant concessions again in 2011, when Republicans threatened to create financial chaos by refusing to raise the debt ceiling. And the current potential crisis is the legacy of those past concessions.

Well, this has to stop — unless we want hostage-taking, the threat of making the nation ungovernable, to become a standard part of our political process.

So what should he do? Just say no, and go over the cliff if necessary.

He's right.

Unfortunately, Obama has shown that he wants the "Grand Bargain" to cut benefits on Social Security, Medicare and Medicaid. David Dayen has been following this nightmarish notion for years. In Pressure Increases for a Grand Bargain Without Any Policy Rationale FDL News 11/09/2012, "Chuck Schumer, obviously running point for Senate Democrats on fiscal slope negotiations, claims that a chastened GOP will be willing to deal. But the only party who has made any concessions on a deal has been Chuck Schumer, floating an extension of current tax rates for upper-income earners, accompanying a limit on deductions." David writes that House Republican Speaker John Boehner's "plan to react to a winning Democratic election is for Republicans to dictate more spending cuts"

He quotes from Jonathan Easley, Schumer: 'Chastened' GOP makes deal possible on fiscal cliff The Hill 11/09/2012, who reports, "Schumer said in return, Democrats would be willing to negotiate changes on matters close to their party, such as Medicare and Medicaid, and indicated Obama might say as much in an address from the East Room of the White House on Friday."

Here is a report from Jonathan Weisman, Congress Sees Rising Urgency on Fiscal Deal New York Times 11/08/2012, discussing the sentiment for such a wretched deal in Congress. They do report:

The forces arrayed against a budget deal remain powerful, and the gap between the parties — at least in their public postures — is wide. Liberals, backed by Senator Harry Reid of Nevada, the majority leader, say Social Security should not be part of any deal. Senator Bernie Sanders, independent of Vermont and a standard-bearer for the left, said Thursday that virtually all deficit reduction should come from tax increases on the rich, closing loopholes that have allowed profitable corporations to avoid paying any corporate income taxes and cutting military spending.

David makes these important points on the phoniness of the "fiscal cliff" construction:

Just as important to this perspective is the point that Democrats gain far more leverage by letting most, though not all, fiscal slope elements expire. And importantly, it's not a cliff – the economy can absorb the expiring measures for a few weeks or even a few months. In fact, OMB can structure the sequester cuts so they have no immediate effect, and Treasury, in anticipation of a resolution, can even freeze withholding rates, so the tax changes have no immediate effect. There’s simply no reason to bind to anything in the lame duck session, given the leverage points in the system.

In other words, this is a fight that Obama will lose only if he wants to "lose," i.e., if he uses the "fiscal cliff" as an excuse to push for a Grand Bargain to cut benefits on Social Security, Medicare and Medicaid.

David also reminds us of the looneyness of adopting austerity policies in the middle of a depression:

More than that, in economic terms, moving forward on austerity is absolutely insane. The relative lack of austerity and continued budget deficit in the United States, mostly due to gridlock, has kept the economy ahead of competitors. To the extent that there has been softness in the economy, it can be directly attributed to austerity – fiscal policy at the federal, state and local levels have actually dragged on growth since mid-2010, though not as much as it would if we let all these fiscal policies expire.

Tags: austerity economics, fiscal cliff, grand bargain, medicaid, medicare, social security