Don’t Fall for the GOP (and Obama) Lie about the Alleged Budget Crisis

We at Tikkun have been saying for the past 3 years what former Sec. of Labor and economist Robert Reich says below and what Paul Krugman has been saying for the past 2 years: there is no serious budget crisis. Instead, we have an employment and housing crisis.

It is true, as Robert Reich says below, that the Republicans have been running with this lie for the past several years in order to prevent the Democrats, when they had the majority in both houses of Congress, and the presidency, 2009-2010, from doing what the country needed: a massive Work Progress Administration (WPA) employment program coupled with a freeze on mortgage foreclosures and a law requiring the banks to renegotiate mortgage interests to what it was when the mortgage was first offered to the buyers.

But Reich plays down the huge culpability of Obama and his economic advisors (who could have been Reich and Krugman, and no Republican forced Obama to go with the pro-corporate advisors he actually chose form the start).

Obama accepted the framing of the problems that the right-wing had developed, and has for 3 years been mis-educating people about the nature of the problem we face. No wonder, then, that he boxed himself in to the current situation in which he may now have few options left. Had he spent the past years educating people to the true situation, he would have had much greater flexibility to stand up to the Republicans in Congress.

Even now, he continues to waffle. He has offered, and pushed Senate Democrats to offer, a “deal” that is 3/4 of what the Republicans want and zero what working people and poor people need, just so he could get a lifting of the national debt ceiling, something he has the power to do in other ways (the 14th amendment provides such a route, though it has never been used before).

Instead of being such a wimp, Obama could even now simply announce the following plan for what will happen if the debt limit isn’t reached: he will pay the social security, medicare and other benefits to those Congressional districts whose representatives voted to raise the debt limit and not to those which did not. And similarly all other federal services. Military installations in the Congressional districts whose representatives did not vote for the raising of the limit will be immediately shut, and all military personnel outside the U.S., starting with Iraq and Afghanistan, will be ordered to return to the U.S.  They play hardball, so could a progressive Democrat, if we happened to have one in office, which we don’t.  If the Supreme Court ordered him to not follow this path, he could tell them to enforce it on their own, because he has the Constitutional responsibility to defend the U.S., and this is the best way to do so.

So lets understand, that all of this comes down to Obama’s capitulations to the Right, on almost every level (except for glbt rights, important and to be commended, but not enough to build a presidency on).

We’ll talk more about Obama in the next issue of Tikkun (yes, there will be a print issue in the Fall for anyone who is a current subscriber or NSP member (or anyone who joins NSP or subscribes now), but there won’t be Tikkun at the newsstands anymore. You want it? Then: subscribe please.

Here’s Robert Reich’s piece, which was published July 29 on his blog:

Don’t Fall for the GOP Lie

Don’t fall for the GOP lie: There is no budget crisis. There’s a job and growth crisis.

Friend who’s been watching the absurd machinations in Congress asked me “what happens if we don’t solve the budget crisis and we run out of money to pay the nation’s bills?”

It was only then I realized how effective Republicans lies have been. That we’re calling it a “budget crisis” and worrying that if we don’t “solve” it we can’t pay our nation’s bills is testament to how successful Republicans have been distorting the truth.
The federal budget deficit has no economic relationship to the debt limit. Republicans have linked the two, and the Administration has played along, but they are entirely separate. Republicans are using what would otherwise be a routine, legally technical vote to raise the debt limit as a means of holding the nation hostage to their own political goal of shrinking the size of the federal government.

In economic terms, we will not “run out of money” next week. We’re still the richest nation in the world, and the Federal Reserve has unlimited capacity to print money.

Nor is there any economic imperative to reach an agreement on how to fix the budget deficit by Tuesday. It’s not even clear the federal budget needs that much fixing anyway.

Yes, the ratio of the national debt to the total economy is high relative to what it’s been. But it’s not nearly as high as it was after World War II – when it reached 120 percent of the economy’s total output.

If and when the economy begins to grow faster – if more Americans get jobs, and we move toward a full recovery – the debt/GDP ratio will fall, as it did in the 1950s, and as it does in every solid recovery. Revenues will pour into the Treasury, and much of the current “budget crisis” will be evaporate.

Get it? We’re really in a “jobs and growth” crisis – not a budget crisis.

And the best way to get jobs and growth back is for the federal government to spend more right now, not less – for example, by exempting the first $20,000 of income from payroll taxes this year and next, recreating a WPA and Civilian Conservation Corps, creating an infrastructure bank, providing tax incentives for small businesses to hire, expanding the Earned Income Tax Credit, and so on.

But what happens next week if Congress can’t or won’t deliver the President a bill to raise the debt ceiling? Remember: This is all politics, mixed in with legal technicalities. Economics has nothing to do with it.

One possibility, therefore, is for the Treasury to keep paying the nation’s bills regardless. It would continue to issue Treasury bills, which are our nation’s IOUs. When those IOUs are cashed at the Federal Reserve Board, the Fed would do what it has always done: Honor them.

How long could this go on without the debt ceiling being lifted? That’s a legal question. Republicans in Congress could mount a legal challenge, but no court in its right mind would stop the Fed from honoring the full faith and credit of the United States.
The wild card is what the three big credit-rating agencies will do. As long as the Fed keeps honoring the nation’s IOUs, America’s credit should be deemed sound. We’re not Greece or Portugal, after all. We’ll still be the richest nation in the world, whose currency is the basis for most business transactions in the world.

Standard & Poor’s has warned it will downgrade the nation’s debt from a triple-A to a double-A rating if we don’t tend to the long-term deficit. But, as I’ve noted, S&P has no business meddling in American politics – especially since its own non-feasance was partly responsible for the current size of the federal debt (had it done its job the debt and housing bubbles wouldn’t have precipitated the terrible recession, and the federal outlays it required).

As long as we pay our debts on time, our global creditors should be satisfied. And if they’re satisfied, S&P, Moody’s, and Fitch should be, too.

Repeat after me: The federal deficit is not the nation’s biggest problem. The anemic recovery, huge unemployment, falling wages, and declining home prices are bigger problems. We don’t have a budget crisis. We have a jobs and growth crisis.

The GOP has manufactured a budget crisis out of the Republicans’ extortionate demands over raising the debt limit. They have succeeded in hoodwinking the public, including my friend.

Robert Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written thirteen books, including “The Work of Nations,” “Locked in the Cabinet,” “Supercapitalism” and his latest book, “AFTERSHOCK: The Next Economy and America’s Future.” His ‘Marketplace’ commentaries can be found on publicradio.com and iTunes.