Nearly every Republican has inserted variations on the phrase “it is time for an adult conversation” into their talking points in recent weeks, so much so that The Daily Show was able to put together a montage about it. If “Adult conversation” is Republican code-speak for a pivot from a campaign against tax increases, to the reality that tax increases and spending reductions will be necessary to avoid a U. S. credit crisis, well then that’s a good thing that should be matched by our side.
By the end of this week the President’s Deficit Commission will vote on a package of measures designed to put the long term deficit and national debt on a sustainable path. However the vote comes out, we are still in the very early stages of a process that is unlikely to reach a solution easily or quickly, but eventually has to get solved through compromise. Failure of this process, however it twists and turns, is not an option anyone should want.
Even if the seriousness of the short term deficits has been exaggerated, the dangers posed by the long-term deficits and debt are absolutely adult business. A debt crisis is not the kind crisis you want to see on the horizon before you do something. When economic forecasts project that a credit crisis will happen sometime in the next ten years, well that means it will happen before sunrise tomorrow. If the bottom does not fall out of confidence in the dollar in Asian markets within 24 hours, America will be stuck in a position where any of our major creditors (such as China), or military adversaries (like Al Qaida, Russia, or North Korea), or oil suppliers (like OPEC or Venezuela) could tip us over the edge with one action, and therefore the credit market confidence would collapse and the U. S. dollar would be in free fall.
The potential for a full scale default of the U. S. Government may be unlikely because our Federal Reserve has the ability to literally “print money,” something the central banks and governments of Greece and Ireland can not do. But doing so in the face of international worries about the level of U. S. indebtedness would immediately cause interest rates to soar, the value of the dollar to plummet, and raise the cost of all imports including imported oil, which would force the economy into a dramatic halt.
The current unemployment rate of 9 percent would look like heaven from the other side of 20%, or even 30%. If you care about deficits, or national security; small business, big business, or labor; seniors or children; the rich or the poor; whether you realize it now or not, avoiding a credit crisis is actually your top priority. Of all the political constituencies in America, perhaps only global warming activists would see their issue advance with a shutdown of a third or half of the U.S. productive capacity. A complete collapse of the dollar would be serious stuff indeed, and perhaps symbolically, we are already seeing our bond ratings lowered by the Chinese.
A Campaign Against Taxes
Republicans have been running campaigns against taxes for a very long time, especially when they are out of power. The realities of governing (and arithmetic) caused Ronald Reagan to raise taxes, and George H.W. Bush raised taxes despite making the “read my lips, no new taxes” pledge. Many Republicans believe that George W. Bush turned a budget surplus into a massive deficit, not because it’s impossible to fight two wars while cutting taxes, but because he was not true to conservative principles when it came to spending.
Just before the end of Bush’s second term, the economy was in such bad shape that he, to his credit, abandoned conservative economic fairytales and used massive amounts of government spending to shore up the banks to avoid a global catastrophe. Yes, even if many Americans are confused about the facts, it was Bush not Obama that bailed out the Banks with the TARP program. But facing a steep drop in consumer demand, Obama increased government spending, probably not enough or targeted enough on stimulus. He also made his own decision to bail out the auto industry, a decision that looks pretty good now that sales and profits are starting to climb.
But as the midterm elections approached, Obama’s economic policy seemed unconcerned about mounting short term deficits amid projections of uncontrollable long term deficits. Partly as a sincere effort to solve the long term budget problem, and certainly also partly to communicate his concern about the long term deficit, Obama formed a Bi-partisan Budget Commission, even though Congress did not give it force of law, and set their reporting date just after the election.
Still the challenge of explaining the policy — that during a major economic downturn short term budget deficits are good even though long term deficits threaten disaster – seemed so complex that the White House barely even tried, and Democrats went into an election about the economy without displaying much confidence in our own economic policies.
Without much of a consistent economic narrative to explain the actions, and with the economy coming back too slowly to move the needle on jobs, Republicans, both establishment and Tea Party, were able to spin the narrative that Obama’s spending was the cause of the problems. And Republican political campaigns are not subtle on the subject of taxes and debt. From coast to coast, Republicans ran ads blaming Democrats for too much spending, taxes, and debt.
The problem, of course is that now they are locked into positions against both taxes and debt. Being against both taxes and debt at the same time implies a willingness to cut spending at a level that is easy to support in general terms but very difficult when it comes to specifics – especially when you add in the Republican campaign ads against the Democrats alleged cuts in Medicare that were part of health care reform. You can only be against taxes, spending cuts, and deficits in a world where the laws of arithmetic do not apply – for example, a political campaign. The “adult conversation” is needed to bring grown up mathematics to bear in a world where two plus two equals four every time.
Give the people what they want, NOT!
The real problem, of course, is not just that Republicans are against taxes, spending cuts, and deficits, everyone is. Public opinion polls such as the latest Hart Teeter survey for NBC and the Wall Street Journal confirm that the largest numbers of voters in the 2010 election were sending the message that spending is out of control, yet the same survey finds 70% of voters uncomfortable with the idea of spending cuts to reduce the deficit if they would include cuts in Medicare, Social Security and Defense, 57% uncomfortable with the idea of gradually raising the Social Security retirement age to 69, and 59% uncomfortable with the idea of increasing tax revenue with such things as a gas tax, limiting the mortgage interest deduction, or changes to corporate taxes.
In other words, Americans are overwhelmingly in favor of reducing the deficit as long as it does not include raising taxes that they pay, or cutting specific government programs. As this debate goes forward there will be a lot of poll results thrown into the discussion. Please let us know the first minute you see one that says something other than this basic story: the public is against the deficit and spending in general, but they are against cuts in specific spending programs, and they are against any tax increases that they would have to pay.
The public can never be ignored in a public policy discussion, but if a financial disaster is going to be avoided, certainly something the public should and does want, then policy makers are going to have to understand that the solution will include elements that polls show the public rejects.
The deficit commissions, [and in full disclosure it should be noted that our mother/mother-in-law, Alice Rivlin, is prominently involved in all of them] have done a great service not only by forcing the issue onto the newspaper front pages, but more importantly, getting responsible voices including Republicans, Democrats, business leaders and labor leaders to agree on a common set of ground rules and CBO-like scoring models. This transforms the discussion from platitudes to policy in a world where the numbers have to add up. Some on both sides see this as rigging the game in favor of tax increases AND spending reductions, and in a sense they are right about that. It is the very meaning of having an “adult conversation.”
Shared pain is the only solution
Shared pain is a pretty unattractive platform for a political campaign, but if we want to avoid the future pain of a credit crisis, it is the only path to a solution. Now that we agree on the scope of the problem and the ground rules for solving it, the next step is to have plans put forward by each side that show it is possible to get to a solution while protecting that side’s sacred priorities (opposing tax increases for conservatives, opposing spending cuts in major programs for liberals). This is a helpful step toward a solution, but it must not be confused with achieving a solution.
In that neither side has the power to enforce its will on the other nor can expect to following any of the next elections, solving the problem is going to involve compromising these lines-in-the-sand. We will see a lot of poll statistics saying the public rejects each element and hear a lot of speeches and blog posts calling every compromise “unacceptable,” but either there will be a grand deal or we will continue on an unsustainable path. Everyone would suffer if there is to be a credit crisis and a dollar collapse so we will all be better off if we realize that to avoid this everyone will end up sharing in the pain of a country living within reduced means to ensure future prosperity.