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The American People Lost the Debt Ceiling Debate

Posted: 08/04/11 08:05 AM ET

The debt ceiling fracas was an insanity-inducing syllabus of everything that's wrong with the American political system. Everything.

The very serious cable news media (and a considerable chunk of the blogosphere for that matter) were preoccupied with safe, superficial sports and/or poker metaphors: who won, who lost, who "doubled-down" and so forth. After all, covering the wonky aspects of the policy itself is no fun and involves math.

The Republican Party, meanwhile, having been responsible for the bulk of the debt in the first place, was allowed to get away with sabotaging the stability of the global economy as the centerpiece of its plan to subsequently sabotage the president. At the same time, one of its congressional leaders, Eric Cantor, was short selling government bonds -- a blindingly outrageous conflict of interest that ought to vindicate Pete Rose for any comparatively trivial wagering sanctions he continues to endure.

The Democratic Party and the White House, paralyzed by fear (fear of taking an aggressive posture for fear of losing the fickle, insufferable middle), helped to push the Overton Window farther to the right.

Far-right conservatives and tea party activists continued to illustrate their willful inability to grasp an even grade-school level understanding of the economy and governing.

The progressive left was out-hustled by far-right activism yet again.

And a for-profit, publicly traded corporation, Moody's, became the ultimate judge as to the viability and strength of the United States of America's credit rating. Think about this while trying to fall asleep tonight: several for-profit corporations, with Moody's at the helm, possess a staggering level of control over America's ability to borrow money, and therefore they essentially controls the pulse of the American economy. Sleep tight!

But none of these observations match up to the super-colossal problem with the debt ceiling debate and the inexplicable outcry for deficit reduction. Simply put: deficit reduction during a slow-growth recovery from an historically deep recession, with continued high unemployment and a housing market still in crisis, is just phenomenally stupid.

When has deficit reduction ever stimulated economic growth during a difficult recovery, and especially considering the disturbing economic indicators we're experiencing today (sluggish GDP, high unemployment, housing crisis, etc)? Never. In fact, the next nearest example -- the conservative budget cuts of 1937 during the recovery from the Great Depression -- damned us to another major recession, which spiked unemployment by nearly 10 percentage points and required another three years for the economy to return to its pre-austerity levels.

So regardless of the deal's content, this shouldn't have been an issue in the first place and we're all going to pay the price irrespective of political party or ideological affiliation.

We never should have been taking seriously the malevolent and utterly premature demands for deficit reduction -- not until the economy was back on solid footing. In fact, and in the best of circumstances, all of the sturm und drang we've endured this year should have been over the magnitude of a second stimulus plan, because if there's one thing that can be proved by historical precedent is that stimulus creates jobs and economic growth, which, in turn, increases government revenue. Indisputable fact.

When fewer of us are pumping money into the economy because, for example, we're unemployed or our house is underwater or, if we own a business, sales disappear, the government is in a unique position to fill in the void with additional spending until the economy is stabilized and growing steadily. There's nothing wrong with deficit reduction, but only when economic strength will allow it, and only if the wealthiest one percent, who disproportionately own 40 percent of the nation's wealth, are willing to contribute in accordance with their means rather than saddling the least fortunate and the nation's workers with the burden.

And the debt ceiling deal leaves those rich people unharmed, while, despite the president's assurances, the rest of us will bear the cost.

Here's how.

There are renewed warnings of another recession. The Financial Times reports that we're "one false move" away from recession. In the same piece, Jim Reid, a strategist at Deutsche Bank, warned of a "1937 moment." Well, of course. Harvard economist Martin Feldstein is predicting a 50/50 chance of another recession. According to the Huffington Post, Bill Gross, co-chief investment officer of the financial services company PIMCO, says we're at the tipping point of another recession. Wall Street, for what it's worth, is also bracing for another recession. Personally, I experienced the stinky ass-end of the previous recession, and, suffice to say, I'm not thrilled with the prospect of a sequel.

The deal will reduce job growth by millions. The nonpartisan Economic Policy Institute reports that the debt ceiling deal will reduce GDP by 0.3 percent in 2012. Not good considering current growth of around 1, or 1.5 percent at best. Plus, the real cuts don't kick in until 2013. That means we'll be hitting the serious cuts while teetering on increasingly unstable footing. But that's not the grim news. The EPI is calculating that 1.8 million jobs will be killed in 2012 due to the big debt deal.

Poor people will, indeed, bear the cost. Due to the discretionary spending cuts in the deal, the states, which are limping through their own budget calamities, won't be receiving enough federal money for crucial social programs. CBS News reports that the cuts will hurt "everything from the Head Start school readiness program, Meals on Wheels and worker training initiatives to funding for transit agencies and education grants that serve disabled children." Additionally, "There also was concern among governors, state lawmakers and state agency heads that Congress would make deep reductions or changes in federal aid for health services for the needy, most notably through Medicaid. That could shift more of the costs onto states that already are having trouble balancing their budgets."

I'm not sure how this deal does anything short of adding, at the very least, another major obstruction in the path to recovery in the best case scenario, and, in the worst case scenario, another 1937.

CNN's Ali Velshi gets credit for the quote of the week:

"While Republicans and Tea Party members have been very effective at painting this as the single biggest problem that the U.S. economy is facing and that helped them succeed in the last mid-term elections, economically, it isn't. It was always a distant second to jobs and economic growth. So the problem is we've got way too many unemployed people. Look, there's three things affect you, right, your ability to earn a living, your ability to have your investments increase in value, and your home. This isn't going to do anything for housing whatsoever. This does nothing for jobs. And in terms of investment, all this has done is cost us because of this game they've been playing in Washington."

Remarkable. A cable news guy who wasn't necessarily talking about who won or lost.

On second thought, strike that. Velshi was talking specifically about who lost.

We lost. Middle and working class Americans. We're the losers here. Not President Obama or the Democrats. And it was always going to be this way. As soon as deficit reduction and austerity became the very serious issue to tackle inside the D.C. cocktail party circuit, completely ignoring major polls showing the priorities Velshi outlined above by the way, the rest of us were pretty much screwed. We never stood a chance.

This should never have been a thing -- not now. And shame on everyone involved for getting it so brutally wrong.

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