The Onion on the Debt Deal: Very Funny, Very True

The Onion, a popular satirical magazine, has a very precise description of the debt deal. The essay mocks the extraordinary concessions the Democrats made to Republicans during the negotiations. Read about it here: Obama: Debt Ceiling Deal Required Tough Concessions By Both Democrats And Democrats Alike.

Stock Market Declines Sharply. Is Debt Deal to Blame?

The stock markets declined sharply today. Several sources point to various factors -- including the passage of the debt deal -- as the cause of today's dramatic decline.

Because the debt deal requires an extraordinary reduction in government spending, many analysts fear that this will worsen an already struggling economy. Governmental participation in the market for goods and services increases demand and generates economic activity. If this demand declines, however, then so will the overall volume of business activity. This is basic macroeconomic theory.

Bloomberg/Business Week:

Many economists, including Federal Reserve Chairman Ben Bernanke, have said the U.S. economy would gain momentum in the second half of the year as gas prices fall and Japan's factories recover from the earthquake disaster in March. Slow U.S. manufacturing growth, a weak job market and concerns about spending cuts in the debt deal have cast doubt on those predictions.

The Street:

The parade of poor economic numbers has started to fuel speculation about a possible need for further monetary easing by the Federal Reserve, although the rise in inflation in recent months presents an obstacle to further stimulus. The deep pullback in government spending necessitated by the deficit reduction legislation, coming as it does amidst a time of high unemployment, added to nervousness over the economic outlook.

Some economists had already predicted that the spending cuts would harm the economy.

Paul Krugman

Krugman criticized President Obama for "surrendering" to the Republicans. Krugman also argued that cutting spending was bad news for a potential economic recovery:

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Indeed, slashing spending while the economy is depressed won’t even help the budget situation much, and might well make it worse. On one side, interest rates on federal borrowing are currently very low, so spending cuts now will do little to reduce future interest costs. On the other side, making the economy weaker now will also hurt its long-run prospects, which will in turn reduce future revenue. So those demanding spending cuts now are like medieval doctors who treated the sick by bleeding them, and thereby made them even sicker.

MSN Money

Joel Naroff, president of macroeconomic consulting firm Naroff Economic Advisors, disagrees with the plan on this fundamental level. "The idea that increasing taxes cuts jobs but decreasing spending doesn't is silly," he says. Instead, a decrease in government spending is going to slow economic growth, worsening an already dismal national economic situation. "It's going to slow growth. If you have slow growth, you're going to have less hiring. In some parts of the economy, there are actually going to be layoffs." In particular, Naroff foresees further job losses in state and local government.

On Healthcare Reform, Florida Is Consistently Bad

Florida, along with several other states filed a lawsuit challenging the constitutionality of the Affordable Care Act. But once the federal government began providing grants to states to assist them with healthcare delivery, some of the very states that oppose the legislation began accepting and applying for these funds. Not Florida!

According to an article in the New York Times, Florida has remained defiant and has rejected federal funding that the healthcare reform legislation provides to states. The impact of the state's refusal to participate, though consistent, seems like poor medicine for a populous state with so many poor and uninsured individuals:

Despite having the country’s fourth-highest unemployment rate, its second-highest rate of people without insurance and a $3.7 billion budget gap this year, the state has turned away scores of millions of dollars in grants made available under the Affordable Care Act. And it is not pursuing grants worth many millions more.

In recent months, either Gov. Rick Scott’s administration or the state’s Republican-controlled Legislature has rejected grants aimed at moving long-term care patients into their homes, curbing child abuse through in-home counseling and strengthening state regulation of health premiums. They have shunned money to help sign up eligible recipients for Medicare, educate teenagers on preventing pregnancy and plan for the health insurance exchanges that the law requires by 2014.

While 36 states shared $27 million to counsel health insurance consumers, Florida did not apply for the grants. And in drafting this year’s budget, the Legislature failed to authorize an $8.3 million federal grant won by a county health department to expand community health centers (emphasis added).

See more here.

Progressive and Liberal Criticism of the Debt Deal

President Obama has accepted a compromise to raise the nation's debt ceiling. In exchange for raising the ceiling, Congress will immediately slash over a trillion dollars from government spending. A "supercommittee" in Congress will then propose additional cuts of nearly two trillion dollars late this year. If Congress cannot agree to specific cuts, then the cuts will be made across the board.

The debt compromise only includes spending cuts. It does not include any mechanism to increase revenue, even though both lower revenue and higher spending have caused the historically high deficit. Also, President Obama initially said that revenue must be a factor in any compromise. He later abandoned that position.

Criticism from the Left

Many liberals and progressives have responded critically to the compromise. Here are some of those arguments.

Robert Reich

Reich, Secretary of Labor during the Clinton Administration, has offered a scathing critique of the proposal. Reich argues that:

Anyone who characterizes the deal between the President, Democratic, and Republican leaders as a victory for the American people over partisanship understands neither economics nor politics.

The deal does not raise taxes on America’s wealthy and most fortunate — who are now taking home a larger share of total income and wealth, and whose tax rates are already lower than they have been, in eighty years. Yet it puts the nation’s most important safety nets and public investments on the chopping block.

Glenn Greenwald

Greenwald, a columnist for Salon.com, attacks the notion that Obama was compelled to accept the slashing of safety net programs in order to prevent a default. Greenwald says that, instead, Obama wanted that outcome:

It appears to be true that the President wanted tax revenues to be part of this deal. But it is absolutely false that he did not want these brutal budget cuts and was simply forced -- either by his own strategic "blunders" or the "weakness" of his office -- into accepting them. The evidence is overwhelming that Obama has long wanted exactly what he got: these severe domestic budget cuts and even ones well beyond these, including Social Security and Medicare, which he is likely to get with the Super-Committee created by this bill. . . .

Jared Bernstein

Bernstein, an economist and former economic adviser to Vice President Joe Biden, has written several essays criticizing the debt deal. Bernstein has criticized the lack of a revenue-generating provision in the compromise; he has argued that conservative ideologues were willing to sacrifice the health of the nation to get spending cuts; and he has argued that the debt compromise will inevitably lead to deep cuts in safety net and other important domestic spending programs.

Liberals in Congress

Liberals in Congress have begun to criticize the deal as well. Rep. Emanuel Cleaver, chairman of the Congressional Black Caucus, described the proposal as "a sugar-coated Satan sandwich" and as a "shady bill."

Also, the debt deal apparently does not thrill Nancy Pelosi. The Washington Post reports that Pelosi offered lukewarm reactions to reports of the compromise:

First, Pelosi said of the deal: "We all may not be able to support it, or none us may be able to support it." Then, later in the evening she folowed up with this lukewarm comment: "I look forward to reviewing the legislation with my caucus to see what level of support we can provide."

Conclusion

Despite these critiques, Congress will probably approve the debt deal. But if the bill passes without significant changes, it simply cannot represent a victory for President Obama -- unless he is really a fiscally conservative Republican in disguise.

Debt Deal: No New Taxes!

Although tax revenue is historically low and federal spending is historically high, the tentative debt agreement (see earlier essay on Dissenting Justice) would not include a mandate to implement or even discuss tax increases. Instead, the deal would slash 2.8 trillion dollars from federal agencies over the next ten years. It would also create a special bipartisan "Super Committee" in Congress to allocate spending cuts (note: the full Congress would have to approve these cuts for them to have the effect of law).

The deal, however, would not require the special committee to consider any tax increases. The combination of lower tax revenue and higher spending, however, has created the historically high federal budget deficit. Nevertheless, Senator Mitch McConnell says tax increases are definitely "off the table." Senator Durbin says that keeping taxes off the table is a "serious mistake." The National Journal has more analysis.

Question: What exactly does Obama gain from this "deal" -- except for an increase in the debt ceiling, which (except for a few moments in history) has been routinely granted?

Debt Ceiling Deal: Preliminary Observations on the Deal AND Obama

The Washington Post reports that Democrats and Republicans have nearly reached a deal in the ongoing talks to raise the debt ceiling. The WaPo article contains a summary of the tentative agreement:

The emerging agreement calls for raising the $14.3 trillion debt limit by up to $2.4 trillion in two stages, with the debt limit rising unless two-thirds of both chambers of Congress disapprove, according to officials in both parties familiar with the talks. That would extend the Treasury’s borrowing authority into 2013, satisfying President Obama’s demand to avoid another showdown over the issue in the heat of the 2012 presidential campaign.

The first stage would pair an increase of roughly $1 trillion with cuts to government agencies of about the same magnitude over the next decade. In the second stage, a special congressional committee would be created to identify additional savings later this year. The size of those savings would dictate the size of the second debt-limit increase, giving Republicans the dollar-for-dollar matchup they have demanded between spending cuts and the debt-limit increase.

Spending Cuts -- What Spending and What About Tax Increases?

The WaPo article indicates that the budgetary cuts would come exclusively from spending cuts to government agencies. The article, however, does not mention which agencies would receive the bulk of the cuts. Nor does the article indicate any specific cuts to the major ticket items in the federal budget -- defense, Medicare and Medicaid. Social Security is "off-budget," but it definitely contributes to the nation's tax burden, and, according to recent analysis, places a strain on the deficit as well.

Furthermore, the article does not mention that the deal includes any measures that would raise tax revenue. Most economists conclude that tax cuts implemented during the Bush presidency (and extended during the Obama administration) have contributed to the deficit.

Moreover, according to a recent ABC News-Washington Post poll, most of the public, including a majority of Republican voters, favors a mixture of spending cuts and tax increases to resolve the deficit. Indeed, with tax revenue being historically low (a result of tax cuts and the recession) and spending being historically high, the deficit has reached its record level.

Nevertheless, the tentative deal, as summarized by the WaPo, does not contain any measures that would mandate tax increases. A one-sided approach -- especially one that does not focus on the major spending items -- seems doomed to fail. For more on the tax issue, see this follow-up essay on Dissenting Justice.

Obama: Tough or Not?

President Obama has received a lot of criticism for not being tough during negotiations. This crisis provides an occasion to test that claim. During the early phase of the crisis, former President Bill Clinton advised Obama not to blink during the debt crisis. President Clinton endured many battles with Republicans during his presidency over the federal budget.

Republicans favored deep spending cuts and often threatened to "shut down" the government unless they got what they wanted. Clinton always maintained his ground and took the Republicans to the mat.

During those battles, Clinton inevitably emerged with greater public support. Clinton utilized the media to portray his foes as unfair and unreasonable. As a result, the Republicans came across as narrow-minded, unreasonable and selfish. Indeed, these struggles ultimately led to the demise of Newt Gingrich and his famed "Contract With America."

Obama has clearly allowed the crisis to go to the final round -- just as Clinton did during his budget battles. For that, he appears tough in his stance. Obama, however, has become somewhat weak during the final phases of the debt negotiations. Rather than using the media to portray the extremist House Republicans as being outside of the mainstream -- as indicated by opinion polls -- Obama instead has retreated to his comfort zone and has demanded that the parties reach a compromise.

This approach suggests that the battle over the debt ceiling involves a debate among two reasonable and rational parties. All that these parties need to do is reach a consensus. But the Republican approach -- particularly as expressed by members of the House of Representatives -- is far from reasonable. The most questionable aspect of the House Republican approach was the inclusion of a proposed balanced budget amendment to the Constitution. This proposal is a bad idea for many reasons. Furthermore, even if it were a good idea, it had no chance of passing in the Senate. Democrats and many Republicans oppose the measure. But rather than relenting, the House Republicans, who claim to oppose government waste, wasted time by sending a bill to the Senate that included the proposed amendment. The Senate promptly tabled the bill.

Obama has failed to capitalize on behavior like this to portray the more extreme Republicans (primarily Tea Party-backed politicians) as reckless and dangerous. Unlike Clinton, it is unclear whether Obama will emerge from these talks with more public approval. He lost a moment to control the public debate and during the most critical moments of the talks has come across as a mere mediator between two opposing parties.

During his presidential campaign (starting with the Democratic Primaries), Obama promised to build bridges, to end the bickering and nasty politics of Washington, and to act as a conciliator rather than fighter. Indeed, that was a primary narrative that distinguished him from his leading opponent, Hillary Clinton.

This approach won favor with the nation -- especially younger voters who naively believed that it was possible for one person to alter the political culture of the nation. While compromise and consensus have a lot of value in politics, fighting and toughness are also important. It seems unclear whether Obama has the desire or ability to exhibit these latter traits. His desire for compromise will probably provoke a lot of debate for the remainder of his presidency (this term and the next one if that occurs).

Update: The WaPo also reports that the tentative deal would include a future vote on the proposed balanced budget amendment. According to the WaPo, however, "the plan calls only for a vote on such an amendment, not the passage of one.

This is confusing language. It is unclear whether Congress can vote on a constitutional amendment but not send it to the states for ratification if a majority of both houses approves the measure. Also, it is unclear what good this does. The public already knows that House Republicans want the amendment; they already approved it. An empty and meaningless vote in the future would not add to the discussion.

Every Murder Victim Has A Story: Ebony Franklin Update

On December 10, 2010, Dissenting Justice reported on the murder of 17-year-old Ebony Franklin. Franklin was among several teen homicide victims in the Washington, DC late last year. Franklin was stabbed repeatedly and stuffed in a trash can in the Columbia Heights section of NW Washington.

Earlier this year, police arrested Franklin's father, Rodney McIntyre, and charged him with murdering his daughter. Prior to his arrest, McIntyre claimed that police were harassing him rather than looking for his daughter's killer. Police evidence, however, indicated that McIntyre had sexual contact with Franklin before her death. Earlier this week, he pleaded guilty to first-degree murder.

Interestingly, when police first announced McIntyre's arrest, they stated that they had evidence of a "sexual relationship" between Franklin and her father. Many media outlets repeated this language. Several commentators (including myself) criticized the use of this language. Women who are savagely murdered by men after sexual contact with those same men typically did not consent to sex. In the plea agreement, prosecutors describe the attack as a sexual assault, even though McIntyre only pleaded guilty to first-degree murder.

Homicidewatch.org has more on this case, including documents related to the plea agreement.