Raising the debt ceiling, a largely symbolic act, should have been a simple house keeping procedure. What some see as leverage for political bargaining, others see as extortion. As the deadline looms, while working to find an acceptable compromise, Congress is essentially fighting over the potential of a default on the national debt. The threat stands against the nation as a whole, and all of its citizens. Failure to reach agreement comes with potentially epic and irreversible consequences.
Extortion does not work unless the extorter is determined enough to execute on the threat and the extorted party cares enough about the damages to capitulate to the threat. In such case, the threat, not the compliance, is the central actor of the debate.
Though the Tea Party may relish the methods, rational minds believe that the ploy will not be carried out. Nor, do they believe that the extortion will uncompromisingly win all of the results that it targets. Both parties want action on the deficit reduction. Threats serve a purpose in giving cover for some who may otherwise shy away from needed action. Both parties want action on deficit reduction. Tea Party threats give cover to Republicans and Democrats alike who might otherwise shy away from tough decisions. Still, there are huge assumptions here that the Tea Party representatives will fall in line with Republican leadership and that Republican leadership is able to lead to a compromise.
In the court of public opinion, the Republicans are suffering most from the failure of these negotiations. They are seen as most to blame for the failure of the talks and as the ones that should give the most ground in order to reach a solution. According to a July 26, 2011, Ipsos/Reuters Debt Poll, the public wants to see a mixed solution with some cuts and some tax increases; fewer than a third (31%) of Americans say that a non-mixed solution (either ALL cuts or ALL tax hikes) is best.
Looking at all of this objectively, we are threatened with a debt default, but the threat is a manufactured problem that can be resolved by rational action. The debt is a problem, but the debt is a factor of past spending decisions. Debt reduction is not of issue. Debt will increase regardless of action taken. Current and future budget deficits are a serious problem in terms of additions to the debt that may eventually carry it beyond manageable levels. Though the budget plan must be sufficiently effective to avoid a credit downgrade by rating agencies, budget deficits over the next decade are not the primary problem. More serious are projected deficits in the following decades. Whatever results from these negotiations, the deficit reduction plan will help recalibrate but will not resolve the long-term deficit problem – more must come. There is, however, the benefit of time to work on the problem.
The primary problem is none of this – it is a stalled economy and jobs. Related to this is the impact of 2012 deficit reductions. Conceivably, the economic and social cost of 2012 deficit reductions can far exceed the benefits. We can only wait and see what develops, but by most measures we are looking at a $20B in direct spending cuts and another $200B reduction with payroll taxes, unemployment, and other programs, that will have a direct impact on the economy. Compared to current spending levels, any budget deal rendered is likely to create a further drag on the already anemic economy that will need to be offset by other means, e.g. a new round of quantitative easing.