Impending Grand Bargain And DC's Conservative Consensus

If Obama wins a great big victory everything will be fine, right? The right-wing threat to America will recede... right? Well, that's silly... from the first day conservative shitheads-- they called them "Loyalists"-- enlisted in the British occupation army to fight against the Patriots, America has been threatened by right-wing selfishness and sociopathic greed. It will never go away. It was kind of under control until they elected a handsome young plutocrat in the 60's-- one of their own-- and he began the radical change in tax policies that could create the toxic billionaires seeking a final showdown against American democracy again. (Yes, I just described JFK, the son of a wealthy dynastic family, who radically shifted the tax structure to allow for unlimited wealth accumulation for a tiny handful of dangerous and violently anti-democratic predators.) Ironic how they got a Democrat to do their dirty work for them. Dwight Eisenhower was too wise to fall for their siren calls. When he handed the keys to the Treasury over to Kennedy, the top tax rate-- the one that protected us from marauders like Sheldon Adelson, the Koch family, the Waltons and the rest of the families financing the coup d'etat known as the Romney campaign-- was 93%. That's what it should be again; it was a good idea and one that was extremely healthy for America.

So now they have not just a Democrat in power, but the first African-America president. Will he preside over the destruction of Social Security and Medicare for them? Not the way Romney would, of course. But...

Former NY Times executive editor Bill Keller penned an OpEd in the Times over the weekend leading a national conservative prayer for a "Grand Bargain" in which the plutocrats will pay a TINY amount of bit more in taxes for a couple of years in return for turning Social Security and Medicare over to the tender mercies and always patriotism-first approach of Wall Street banksters. What a bargain! "Talk to any credible economist,: suggests Keller, "wire any serious politician to a polygraph, and you will hear at least 80 percent agreement on what is to be done: investment to goose the lackluster recovery and rebuild our infrastructure, entitlement reforms and spending discipline to lower the debt, and a tax code that lets the government pay its way without stifling business, punishing the middle class or rewarding sleight of hand. The bipartisan Simpson-Bowles commission assembled a grand bargain that does most of this."

You known what "entitlement reform" means, right? Keller isn't talking about curbing the self-entitlement of billionaires who think the rest of us are mute beasts in their otherwise beautiful world of achievement. He's talking about Social Security and Medicare. And he's whining that "in this Washington, in this election year, there is no chance of accomplishing anything constructive." Keep in mind that "constructive" to an incredibly wealthy New York Times ex-executive editor is probably totally destructive to a normal American working family. Keller, of course, has a "solution," not for us, but for people like himself.

President Obama has a bold option at hand, should he choose to use it. And some of his fellow Democrats are starting to warm to the idea. It has been called the nuclear option and likened to falling off a cliff. It is widely regarded as a possible catastrophe. In fact, it may be our best hope.

In January, two fiscal time bombs planted by Congress are due to explode. On Jan. 1, all the Bush tax cuts expire, constituting a $400-billion-plus tax hike in 2013. The next day-- unless Congress agrees on a major deficit-reduction plan-- a fiscal discipline known as sequestration will slash about $100 billion a year from federal spending, divided between defense and nondefense.

Blanket repeal of the tax cuts and across-the-board spending reductions are both pretty bad ideas. Taken together they are a kind of grotesque, automated austerity program. Lawmakers of both parties are desperately seeking ways to evade some of the consequences. Republicans are more focused on sparing the defense budget, and Democrats are pressing to preserve the middle-class tax cuts.

For months now, Erskine Bowles, the former Clinton chief of staff and a co-chairman of the Simpson-Bowles commission, has been quietly proposing that Obama treat the January Armageddon as an opportunity. The president should head straight for the cliff and let Congress know he’s prepared to take us over the edge unless they build a bridge.

In other words: President Obama should declare now that unless Congressional leaders come up with a serious bargain on fiscal reform, something very like Simpson-Bowles, he will allow all of the Bush tax breaks to lapse and all of the draconian cuts to take effect.

Assuming no deal is consummated in the poisonous pre-election climate, he should insist on a lame-duck session after Election Day. He should invite Congressional leaders to Camp David, put Simpson-Bowles on the table, and negotiate-- not a lot, since the plan already includes considerable compromise, but enough to show good will. If no deal emerges, all the Democrats have to do is take a page from the Republican playbook: dig in their heels and do nothing.

The best case (Bowles is optimistic, I’m a little less so) is that the lame-duck session passes a bipartisan plan that actually helps the country out of its enduring recession. Worst case, the president and his party seize the moral high ground and shape the economic debate around a plan that would be both wise and popular. When the tax breaks expire and the robo-cuts go into effect, the next Congress and president, whichever party prevails, will be forced to face the subject with real urgency. Lawmakers will be under siege from legions of constituents, and the markets, demanding an end to stalemate.

Moreover, as Jonathan Weisman pointed out in the Times the other day, after Armageddon the issues on the table would no longer be the perilous business of raising taxes and cutting spending, but the opposite: cutting taxes (at least some of them) and restoring spending (at least some of it).

Republicans will howl that this is blackmail, a priceless complaint from the party that periodically threatens to let America default on its debt.

But does Obama have it in him? This is the kind of tactic Lyndon Johnson would have employed with relish. You can imagine Bill Clinton pulling it off. President Obama, whether out of diffidence or inexperience, has not shown a comparable audacity or mastery of political leverage.

Well, here’s his chance to show us what we can expect if he’s re-elected: fruitful leadership, or another four years of gridlock.

Yesterday, looking at some predictably similar claptrap from Steven Pearlstein in the Washington Post-- after all, who but the obscenely wealthy and their tribunes get to define who is and who isn't a "grown up" and "serious?"-- Dean Baker warns of the same kind of coup we've been warning about here at DWT. Baker is clear about what Pearlstein is demanding-- that the rest of us "all should be hopeful that a group of incredibly rich CEOs can engineer a coup."

While the rest of us are wasting our time worrying about whether Barack Obama or Mitt Romney are sitting in the White House the next four years, Pearlstein tells us (approvingly) that these honchos are scurrying through back rooms in Washington trying to carve out a deficit deal.
The plan is that we will get the rich folks' deal regardless of who wins the election. It is difficult to imagine a more contemptuous attitude toward democracy.

The deal that this gang (led by Morgan Stanley director Erskine Bowles) is hatching will inevitably include some amount of tax increases and also large budget cuts. At the top of the list, as Pearlstein proudly tells us, are cuts to Social Security and Medicare. At a time when we have seen an unprecedented transfer of income to the top one percent, these deficit warriors are placing a top priority on snatching away a portion of Social Security checks that average $1,200 a month. Yes, the country needs this.

The most likely cut to Social Security is a reduction in the annual cost of living adjustment of 0.3 percentage points. While that might sound trivial, the effect accumulates through time. After ten years, a typical check will be about 3 percent lower, after 20 years it will be 6 percent lower, and after 30 years it will be about 9 percent lower.

Social Security amounts to 90 percent or more of the income for one-third of seniors. For this group, the proposed cut in benefits would be a considerably larger share of their income that the higher taxes faced by someone earning $300,000 a year as a result of the repeal of the Bush tax cuts on high income earners. The latter is supposed to be a big deal, therefore the proposed cuts to Social Security are also a big deal.

The most likely Medicare cut is an increase in the qualifying age from 65 to 67. Those who pay attention to policy issues know that the health insurance market for people in their sixties is a disaster. And, if they could be bothered to look at the Congressional Budget Office's analysis, they would know that this change would hugely increase the cost of care for the country as a whole, even if it saved the federal government money. In other words, it is exactly the sort of budget cut we would expect from a group of cynical rich people.

Just about everything in Pearlstein's piece is upside down. Of course the major problem facing the country at present is massive unemployment. If the economy was near full employment we wouldn't have a big deficit. The long-term story behind the deficit projections is of course projections of exploding private sector health care costs, as every budget analyst knows. That should lead to a discussion about fixing the health care system, not a discussion of the budget.

Pearlstein even bizarrely brags that his deficit fighting crew has been warning about the problem for the last decade. Well, we haven't had a deficit problem for the last decade. We had a housing bubble problem. And because the Washington Post and other elite media outlets obsessed in reporting about the deficit non-problem, the housing bubble continued to grow unchecked.

Eventually the housing bubble blew up and wrecked the economy and also gave us large deficits. So now who does the Post turn to as authorities on the economy, naturally the people who ignored the housing bubble. And they wonder why the country has contempt for the Washington elite.

Driving home Saturday night I listened to Tavis Smiley's show on PRI about the "impossibility" of defense cuts. The Military Industrial Complex is covering it's ass by claiming that cutting defense spending will drive up unemployment and tank the economy. Take a listen:



They don't think they should even by part of the Grand Bargain. Robert Naiman, Policy Director for Just Foreign Policy has a much more perceptive and independent way of looking at it. Naiman isn't part of the Beltway Conservative Consensus. He also took at look at Pearlstein's unserious, non-adult piece in the Post and he counted 1,421 words in it.

Occurrences of the word "military": zero

Occurrences of the word "Pentagon": zero

Occurrences of the word "Defense": zero

How big a deal is this?

Here's a rough calculation.

The target for deficit reduction is $1.2 trillion over 10 years. That's the size of the automatic budget cuts a negotiated deal is supposed to replace.

The status quo of the automatic cuts is: $600 billion military, $600 billion domestic. (It's less actually, because due to interest costs, you can save $600 billion by reducing spending less than $600 billion, but let's ignore that for now for simplicity.)

There are three ways these cuts can be replaced: revenue increases, other military cuts, other domestic cuts.

Now, suppose that military cuts are off the table. Then the automatic cuts can only be replaced by revenue increases or other domestic cuts.

Now, the big drama supposedly is to what extent Republicans are going to agree to revenue increases at all. But let's suppose they do-- it's certainly not totally implausible, they almost did in the Boehner-Obama deal; Coburn claimed in the NYTimes a bunch of Senate Republicans are
ready to agree.

Does anyone think that the Republicans are going to agree to a package of one-for-one? A dollar of new revenue for every dollar in cuts?

If not, then according to arithmetic, the revenue increase in the deal will be less than $600 billion and the domestic cuts will be greater than $600 billion.

In this case, taking military cuts off the table guarantees that domestic spending will be cut MORE under a deal that replaces the sequester than under the automatic budget cuts. The deal would
essentially replace the military cuts of the sequester with a mix of revenue increases and domestic cuts, causing domestic cuts to increase over the sequester.

If that is the case, then why should anyone who cares about protecting domestic spending support a deal to replace the sequester?

Note that under the sequester, Social Security and Medicare benefits are protected.

Democrats and liberals are being told that we should pressure the Republicans to agree to revenue increases to stave off domestic cuts. But if military cuts are off the table, this is a colossal lie. If
military cuts are off the table, then the effect of the revenue increase deal will be to increase domestic cuts and stop military cuts.

Naiman wants to know why Democratic constituency groups aren't calling out this lie? The veal pen? It does look like the Congressional Progressive Caucus leadership-- Grijalva and Ellison-- will fight hard to hold the line. They have plenty of weak links in their caucus, of course, especially if Obama cracks the whip, but if independent-minded progressives like Alan Grayson, Darcy Burner, David Gill, Chris Donovan, Nick Ruiz and others on this list are elected, Grijalva's and Ellison's hand will be strengthened.