Why the GOP Won the Debt Debate

As argued yesterday, the debt deal compromise is not perfect, but it is nevertheless a fair deal.  William McGurn, at the Wall Street Journal, outlines why the deal is a large win for the Republicans.

It's that the deal has Democrats, including the president, essentially signing on to the Republican framework for defining the Beltway's budget problem: spending that is too high rather than taxes that are too low.... And come the 2012 elections this deal will help force the debate that all conservatives have wanted all along—about the size, scope, and proper mission of our federal government.... That puts 2012 on terms much friendlier to the argument that Republicans need to make to the American people. It runs like this: If you are want a government in Washington that spends less, that taxes less, and encourages our private sector to grow, you need a Republican in the White House.

The win lies not so much in the details of the compromise - there is certainly a mix of good and bad in this regard - but in the fact that the right has changed the terms of the debate.  America has a long history of relying on a leftist framework to government and budgetary issues; namely, big government spending is good and taxes must be increased to fill any budgetary gap.  Now, serious government retrenchment is on the table.  The right is still a long distance away from actually crafting a government in the proper, limited fashion supported by conservatives, but by beginning to alter the frames of discussion we are one large step closer to achieving that.

Is the Far-Left Trying to Rewrite the Constitution?

Some on the far left are urging Obama to disregard his own debt ceiling deal in favor of using the "nuclear option" to unilaterally raise the debt limit.  This argument, raised by a number of House Democrats, relies upon a weak interpretation of the fourteenth amendment, which states:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

The claim seizes upon the lines "[t]he validity of the public debt of the United States... shall not be questioned" dubiously asserting that this signifies the constitution allows the president to unilaterally issue debt.  However, the argument is so full of holes that even the administration has categorically rejected it.  Obama stated, “I have talked to my lawyers...  They are not persuaded that that is a winning argument.”  

The truth is that this part of fourteenth amendment, which was written in the midst of the Civil War, was drawn up to prevent Congress or the president from repudiating existing debts. This was rooted in the fear that after reunification with the South, former Confederate legislators would try to wipe out Union debt.  Its aim was to ensure that a congress could not backtrack on the promises of previous congresses, undoing commitments made to debtors and thus injuring the debtors and the United States.  The amendment in no way authorized the president to unconditionally incur new debt and certainly did not question the primacy of Congress’s responsibility to issue debt or the constitutionality of a debt limit.  Stanford's Michael McConnell sums up the constitutional law nicely.

Section Four of the Fourteenth Amendment does not create a back-door method for the Administration to borrow more money without congressional authorization. For Congress to limit the amount of the debt does not “question” the “validity” of the debt that has been “authorized by law.” At most, it means that paying the public debts and pension obligations of the United States, as they become due, has priority over all other spending. 

The leftist perspective is merely an attempt to twist the constitution to prevent needed fiscal reforms.  Not only is it unconstitutional for Congress to abdicate this responsibility - Article 1, Section 8 of the Constitution says that only "[t]he Congress shall have Power... To borrow Money on the credit of the United States" - but, as argued elsewhere, such an interpretation would place the United States in dire straits, removing a huge check on rampant expenditure.

A Fine Debt Deal

The bipartisan deal, announced yesterday by the White House, to raise the debt ceiling alongside significant spending cuts has not only helped avert an economic crisis, but has started a much needed process towards fixing America's fiscal situation.  As Speaker of the House, John Boehner (R-OH) said, "[It is not] the greatest deal in the world.... But it shows how much we've changed the terms of the debate in this town....”

The deal, which has yet to be voted on by either chamber of congress but is largely expected to pass, includes immediate cuts and an increase in the debt ceiling.  This is to be followed by a second round of cuts and debt ceiling raises, backed by the recommendation of a bipartisan committee.  Notably absent at this stage are any tax increases or a balanced budget amendment.  Both issues will be raised by the time of the second round of cuts.

Republicans should be quite happy with the outcome.  While the deal certainly has not achieved everything that the GOP desired, it is a good first step.  Reforming the fiscal condition of this country is a process.  After some 80 years of fiscal misguidance, it is far too ambitious to expect all of the needed changes to be implemented during one summer's battle over the debt ceiling.  What this battle has done is begin to change the national mentality.  It has rewritten the terms of debate in a manner that is more conducive to further reforming the fiscally unsound policies of the post-war era.  For the first time, debt limit increases have been linked to to spending cuts.  As Senate Majority Leader Harry Reid (D-NV) bemoaned, the debt ceiling has been unconditionally raised 74 times since 1962.  This has now changed and each future debt limit increase will most certainly involve debates over additional cuts.

In one sense, it is probably good that the Republicans have not received everything that they want - and everything the economy needs - in this one deal.  If the GOP had managed to drive through a "dance-in-the-streets" deal - one complete with a balanced budget amendment, fulsome plan to reduce our national debt, and severe cuts to government spending and entitlements - the debate would be prematurely terminated.  This may have thus provided the needed fiscal changes, but would accordingly fail to make them lasting.  It would only be a matter of time before the left regained the position to scale back these reforms.

The fact is while these needed changes are apparent to many, especially on the right, they are unfortunately not obvious to all Americans.  Fixing policies is only half the game, changing the American mentality is the real crux of the battle.  Unfortunately, many Americans are not quite ready to completely revamp their thinking about deficit spending and the government's fiscal responsibilities.  Accordingly, winning too much, too soon could undermine the broader discussion that is needed.  America needs to realize the necessity of making these reforms and turn from its all-the-time-Keynesianism deficit spending mentality to one of long-term fiscal responsibility.  The process that the battle over the debt ceiling has started will provide the continued platform to present these arguments.  These reforms will only become permanent if the American ethos is severely altered. Spending beyond our means is unsustainable, but unfortunately much of America will need to be convinced of this through a drawn out debate.

Republicans should be sanguine with their success.  No, it is not perfect, but it is an amazing start.  For a party that only controls one-third of the government and has faced a Democratic opposition that started on the far-left of American politics, it has been an astounding feat to so change the national dialogue.  There is still much more work to done, and given the ingrained and long-established interests it will not be easy; yet a historical process has begun.  For this we should be proud.

$15 Trillion in Hundreds

Here's an interesting graphic made by designer Oto Godfrey.  It shows what $15 trillion dollars (a little more than the national debt limit) would look like if stacked-up in hundred dollar bills.

$15 trillion USD

It's a lot of money, whether or not it dwarfs the Statue of Liberty, but the graphic puts it into an interesting perspective.

Not Such a Hard Deadline

According to a New York Times report, August 2nd is not really the "hard deadline" that the administration has been arguing will signify the end of the federal government's ability to pay its bills.  For months pressure has been building to raise the debt limit by this date to avoid the catastrophic event of default.  However, as the Times reports it seems that there is at least another week of cash available to pay the government's bills.

It turns out the federal government is sitting on some extra cash.  

Thanks to an inflow of tax payments and maneuvering by the Treasury Department, the government can probably continue to pay all of its bills for several days after Aug. 2, providing potentially critical breathing room for Congress to raise the debt ceiling, according to estimates by several Wall Street banks and a Washington research organization.  

The consensus is that the government will not run short of money until Aug. 10, when it would be unable to cut millions of Social Security checks without borrowing more money. ...The government will exhaust its ability to borrow more money on Aug. 2, which is equivalent to maxing out a credit card. But there still will be cash in the federal wallet.  Some Republicans have expressed skepticism about the Aug. 2 deadline, describing it as an artificial line drawn by the Obama administration for political reasons. Analysts emphasize, however, that the deadline is real; it’s just the date that is inexact.

Obviously this does not obviate the need for some deal to, at least in the short-run, raise the debt ceiling with concomitant cuts in spending and some tax reform.  It does however provide the markets with some much needed time before "crisis" hits.  If these numbers are legitimate, it would be prudent for the White House and congressional leaders to seize upon them to quiet market psychology.  Winning a political battle is not worth sinking the economy.

A Message from Chaz

Charles Krauthammer sends a message of warning to the GOP to not take the debt limit fight to the cliff.  Arguing that Obama has politically "outmaneuvered" the Republicans, he believes that the GOP needs to forgo a large reform package in order to "call Obama's bluff".  Instead they should opt for a short-term package and then address the reform issues later, putting the burden of failure on the Democrats.

If conservatives really want to get the nation’s spending under control, the only way is to win the presidency. Put the question to the country and let the people decide. To seriously jeopardize the election now in pursuit of a long-term, small-government, Ryan-like reform that is inherently unreachable without control of the White House may be good for the soul. But it could very well wreck the cause.

This seems to be sage advice.  As John Podhoretz reports at Commentary, a recent Quinnipiac poll suggests that if the US defaults on its debt, Republicans will be blamed by a margin of 48-34.  Republicans are right to be angry at the left's intransigence and unwillingness to seriously address our crumbling fiscal condition and are correct in the prescribed medicine of entitlement and tax reform.  Nevertheless, they must not lose perspective of the broader conflict.  It will be impossible to make the needed ideological shifts in our government, if the GOP cannot maintain a position of leadership.

The McConnell Escape Plan

Poor Mitch McConnell (R-KY) is getting slammed for what he has called "a sort of last-choice option[in the debt debate]."  The senate minority leader has proposed what seems to be a reasonable way for the Republicans to escape from the stalled negotiations over the debt limit, while putting the Democrats on the defensive.  Yet, very few seem to be thrilled with McConnell's proposal.
The proposed plan would allow Obama to unilaterally raise the debt ceiling at set times and set amounts with Congress possessing the right to prevent an increase with a 2/3 vote.  This would go into effect without any deal on taxes, entitlement reform, or spending cuts.
At first glance, such a proposal appears to be a timid withdrawal and much of the far right base is livid.  Over at RedState, Erick Erickson calls McConnell "Pontius Pilate" for his "historic capitulation".  Michelle Malkin howls that it is "another mortifying McConnell head-banging-against-the-wall moment."

While the base is right to be angry at missing the opportunity to really reform the system, their anger is woefully misplaced.  McConnell's plan certainly is not optimal.  Any ideal plan should reform both the tax and entitlement systems.  However, it is a second-best backup plan - one that is preferable to realizing too late that the Democrat's truly are willing to sink the country's economy in order to maintain a surfeit of entitlements.

The Wall Street Journal spells out the logic the best.

Republican Senate leader Mitch McConnell said yesterday he's concluded that no deal to raise the debt ceiling in return for serious spending restraint is possible with President Obama, and who can blame him? 

... 

The debt ceiling is going to be increased one way or another, and the only question has been what if anything Republicans could get in return. If Mr. Obama insists on a tax increase, and Republicans won't vote for one, then what's the alternative to Mr. McConnell's maneuver?  

Republicans who say they can use the debt limit to force Democrats to agree to a balanced budget amendment are dreaming. Such an amendment won't get the two-thirds vote to pass the Senate, but it would give every Democrat running for re-election next year a chance to vote for it and claim to be a fiscal conservative.  

... 

Even if Mr. Obama gets his debt-limit increase without any spending cuts, he will pay a price for the privilege. He'll have reinforced his well-earned reputation as a spender with no modern peer. He'll own the record deficits and fast-rising debt. And he'll own the U.S. credit-rating downgrade to AA if Standard & Poor's so decides.  

We'd far prefer a bipartisan deal to cut spending and reform entitlements without a tax increase. But if Mr. Obama won't go along, there's no reason Republicans should help him dodge the political consequences by committing debt-limit harakiri.

Essentially, if no deal is possible then McConnell's plan lets Obama take the fall for raising the debt ceiling without cuts (a surefire way to look like an economic dunce), absolve the Republicans of charges of being obstinate and causing economic turmoil, and salvage the economy in the short-run in order to fight the entitlement battle another day.  The alternatives?  Sign on to the Democrat's plan or allow the economy to run off a cliff.  If a deal with the Democrats truly isn't possible, the McConnell plan seems like a healthy way out.

A Taxing Mentality

Tensions have been mounting as the White House and congressional leaders have failed to agree on a package to resolve the impending debt-limit crisis.  Republican leaders, including House Speaker John Boehner, House Majority Leader Eric Cantor, Senate Minority Leader Mitch McConnell and Senate Minority Whip Jon Kyl, have all resolutely stood firm in opposing any tax increases as part of a deal to raise the debt-limit.

The GOP leadership is absolutely correct in their obstinacy.  While ultimately some short-run tax increases may be necessary to pay-off the monumental heap of debt this country has imprudently managed to accumulate, the Democrats seemingly do not understand the need to spend less than the federal government takes in.  Until the Democrats show an understanding of what taxes are for - namely to pay for the essential services required by this country - no tax increases should be considered.

Mona Charen highlights the backwards thinking of the left in an editorial at NRO.

It is becoming a verbal tic — the tendency on the part of the president to tell wealthy Americans (“people like me,” he’s always careful to add) that they have made more than enough money and will have to cough up more of it for the government. Speaking for himself on July 11, the president offered that he had “hundreds of thousands of dollars that I don’t need.” 

The president is of course welcome to donate as much of his extra money as he likes to the federal treasury. He knows Timothy Geithner personally and can probably get a guarantee that his check will be cashed without delay. And since the president is so ready to impute unpleasant motives (like greed) to those who oppose tax increases, perhaps we should impute some sort of moral failing to him for not having thus far contributed his spare change to the government.

The government should never be in a position to determine who has "enough" and thus claim a moral right to take "excess" from an individual.  The government's place is to provide a set of essential services - military, police force, infrastructure, and arguably some minimal safety net (to minimize social disruption).  The need for taxes should be based not on some arbitrary definition of "enough" but on the predetermined needs of the state to properly function.

The Democrats' reliance on the notions that the government can take because people have to much and that the government should provide because people want, shows a flagrant disregard for the purpose of government and taxes.  Tax reform may be necessary (loopholes should be closed), but it cannot succeed (and shouldn't be part of a "grand bargain") until this country's approach to spending and taxes is reevaluated.

The Escape Clause

In light of today’s meeting between congressional leaders and the White House over the debt ceiling and entitlement cuts, two Republican senators have voiced strong support for a balanced budget amendment. Writing in the Wall Street Journal, Senators Olympia Snowe (R-ME) and Jim DeMint (R-SC) state that:

A constitutional amendment to balance the budget is imperative if we are to provide continuity of fiscal responsibility, and ensure we never return to the recklessness of the past and present. It's time Congress passed the amendment and gave the states—and "We the People"—their say.

The senators’ argument not only has wide support amongst the base and Republican politicians; all 47 GOP senators have endorsed such an amendment; but is sound and well articulated. The irresponsibility of continuous spending beyond our means is ruinous for the economic future of the United States. As Snowe and DeMint argue, “the only way to compel lawmakers to maintain their [fiscal] responsibility forever is a balanced budget amendment to the Constitution.”

However while the merits of such an amendment are clear to nearly all on the right and the more sensible on the left, there is at least one potential drawback that needs to be considered in the language of any acceptable proposal. While in nearly all instances there really is no reason to maintain an imbalanced budget, there are a few possible exceptions to the rule. Any balanced budget amendment must include an escape clause in order to prevent hamstringing future leaders (or daresay lead to a repeal of this amendment).

The most obvious exception is the case of major war or national catastrophe. It would be extremely difficult for any country to wage a large scale war, like WWI or WWII, without resorting to debt. Not only would such a restriction be impractical, but it would arguably be immoral to prevent our leaders from taking necessary measures to protect the country.

Concomitantly, there is an argument to be made that the costs of such a war (WWIII) should be spread over multiple years, if not multiple generations. After all, the sacrifices of those who fought in WWII were not just for the benefit of their generation but their progeny as well. It may be impossible for future generations to shoulder past sacrifices in terms of lives; however, it is possible to spread the financial costs. Utilization of debt is a prime tool to balance the costs of such conflicts over multiple years and generations.

Obviously, such instances are exceptionally rare and thus the use of an “escape clause” would only be warranted under extreme circumstances. Nevertheless, the point remains that debt or even a deficit is not always a bad thing. In certain other instances such as significant national projects (how to define the worthy ones is a tough issue) and severe economic decline, deficit spending might have beneficial uses. Just like the responsible use of debt by the individual – a homeowner who takes on a mortgage or a student who takes out loans to pay for college – there are instances where government debt is acceptable, even beneficial.

Debt isn’t intrinsically bad. The excessive abuse of it is the problem. Funding programs (and entitlements) that the government should not even be involved in is bad. The current mentality of spending more than we produce on a yearly basis even goes beyond the Keynesian economics it purports to be based on (Keynes argued for deficit spending during economic downturns with surpluses in upturns, not deficit spending every year). Such a mentality needs to be eradicated and the balanced budget amendment is a fabulous way to do so. Politicians should just be careful that in their haste to solve a serious problem they don’t create a new one by failing to consider the potential benefits of debt. It is a shame to throw the baby out with the bathwater.

Time to Fix the Economy: The Debt Limit and Spending

Yesterday's vote on raising the debt limit was, as expected, voted down by the vast majority of the House of Representatives.  While Democrats, including Minority Whip Steny Hoyer (who voted against the bill), are hurling accusations of political theatre, the rejection of the "clean debt limit vote" was appropriate.  The message sent is unequivocal:  America cannot continue to spend beyond its means.  Cuts are needed and any increased ability to spend must be countered by reduced expenditures.

In a sense the Democrats are right.  This vote was not really about the debt limit.  Speaker of the House John Boehner (R-OH), said it clearly “It’s true that allowing America to default would be irresponsible....”  However, default is certainly not an issue, at least at this point.  Instead, the vote was much more about changing the prevailing economic discourse in this country, where for far too long it has been easy to spend beyond our means and push off the consequences.  It is necessary and laudable for Congress to stand its ground and show that there really is no such thing (anymore) as "easy money".

The debt limit may ultimately need to be raised (a default would be catastrophic), but not without meaningful reassessment of the government's fiscal condition.  We are, as a nation, spending far too much.  Former Republican governor of Utah and possible presidential candidate, John Huntsman eloquently articulated the need to reevaluate our economic position, in what can fairly be described as a campaign speech in today's Wall Street Journal.

Amongst other points, Huntsman argued that the debt level must be cut while difficult choices need to be made regarding Medicare, Social Security and other government expenditures including agricultural subsidies.  Even Sarah Palin has jumped in the fray, smartly calling for an end to all energy subsidies.

Boehner is taking this message directly to the president, in a meeting scheduled for today, where he and fellow GOP congressmen aim to push Obama to make deep spending cuts in order salvage the US's fiscal sanity.  Backed by a number of leading economists, Boehner argues that "“To help our economy grow and create jobs, any debt limit increase needs to be met with even larger spending cuts.”


The GOP and those 82 House Democrats that voted against raising the debt limit are right to stand firm.  America must realize that our situation is perilous and that it is time to adjust our system before it becomes too difficult.  Huntsman summed up the sentiment nicely "Some argue for half-measures, or for delaying the inevitable because the politics are too hard. But delay is a decision to let America decline. The longer we wait, the harder our choices become."