Hullabaloo

Tuesday, March 15, 2011

 
Grand Bargains and Adult Conversations

by digby

Yesterday the Wall Street Journal reported that the "adult conversation" about the "grand bargain" had begun in earnest. (And yes, it used those exact phrases, which should tell you something about the thrust of the piece):

Don't look now, but an adult conversation has begun on the federal budget deficit.

Away from the shrill noise of Congress's battle over spending this year, Washington has quietly begun the most serious debate on long-term deficit-reduction in decades—the "adult conversation" that political leaders have said will be needed to address this fiscal year's forecast of a $1.65 trillion deficit and the nation's long-term fiscal woes.

Here is the thumbnail sketch of why the environment is allegedly so ripe for these "adults" to "bargain":

Among the signs of a changing climate:

• When several senators held a policy-heavy briefing on deficit reduction in the middle of an ice storm last month, more than 40 of their colleagues—almost half the Senate—showed up.

• Democrats initially wanted to freeze discretionary spending this year, but retreated almost without a fight. Debate on the remaining 2011 budget is now entirely about what, not whether, to cut.

• Cuts in entitlement programs, untouchable just months ago, are being pursued by both House Republicans and Senate Democrats, in very different ways. The recent stalemate over cuts to domestic discretionary spending in this year's budget has underscored how little can be saved in those programs, which make up only 12% of the budget

• Some of the most conservative Republicans in the Senate, such as Tom Coburn of Oklahoma, have pushed back against criticism from anti-tax activists, and remained open to revenue increases as part of a broad deficit-reduction deal.

Call me crazy but I'd be skeptical that the Republicans will agree to tax hikes in this environment. And getting Coburn and a couple of others won't help, although it could entice some Democrats to go out on a limb and have it chopped out from under them in 2012. (I know John Boehner "promised" they wouldn't run against Democrats on SS if they agreed to a Grand Bargain, but I'm fairly sure David Koch and Karl Rove don't feel bound by it.

And what's happening at the White House on this? Well, looks like that "Team 'O Rivals" are having another spat. The Hill reports:

Treasury Secretary Timothy Geithner, National Economic Council Director Gene Sperling and Sperling’s deputy, Jason Furman — leading figures in the president’s economic team — are pressing Obama to cut Social Security benefits if necessary, say sources familiar with their positions.

But Obama’s political team, led by David Axelrod, David Plouffe and Jim Messina, are urging the president to understand that backing benefit cuts could prove disastrous to his 2012 reelection hopes, sources say.
o were making the
The political team is winning the argument so far, but internal debate rages at the White House as Republicans in Congress insist sweeping efforts to restore government finances must include Social Security reform.

A source is quoted as saying that some of those who were making the spurious point that Social Security is better cut under Democrats than Republicans (Sperling, Furman)are holding fast to that approach despite the fact that the Tea Party wrecking crew is holding more power in the negotiations than ever.

The political folks are smart enough to realize that cutting Social security is incredibly politically risky and they don't want to try to get Obama (and other Democrats) re-elected with that albatross around their necks.

It's the "forward leaning" Geithner who is leading the charge. And why? Confidence fairies and bond vigilantes, of course:

Geithner and his lieutenants argue that benefits reform will give the markets confidence that Obama and Congress have the will to address the problem of long-term national debt...

Geithner told the Ways and Means Committee in February that Congress must shore up the trust fund. He said the president would work with lawmakers but would not accept drastic cuts.

“We will reject plans that slash benefits; that fail to protect current retirees, people with disabilities and the most vulnerable; or that subject Americans’ retirement savings to the whims of the stock market,” Geithner told lawmakers.

Democrats opposing any cuts worry that Geithner left the door open to benefit reductions that are characterized as modest by centrist Democratic policy experts, such as raising the retirement age from 67 to 68 by the year 2050.

The word "slash" is a specific talking point. They all use it. As far as I know, no reporter has yet cornered any of them on the difference between "cut" and "slash" and what they mean by it.

Democratic sources who have discussed reforming entitlement programs with senior White House officials say the debate continues behind the scenes.

“It’s not over,” said a centrist Democratic policy expert who has urged the administration to raise the retirement age, recalculate cost-of-living adjustments and raise the limit on income subject to payroll taxes.

“I know there are people in the administration who think Social Security should be done and some people who think it shouldn’t,” said this source. “I think the political people in general think it’s a bad idea and the economic and policy people think it’s a good idea.”

This is an interesting insight because what it really illuminates is the fact that Obama's economic team's main job is to "send messages" to the bond market. As Krugman has written extensively, this is a particularly bankrupt and almost desperate move that makes little economic sense unless the Treasury Dept has now literally bought into the idea that they need to sacrifice human beings to appease the market Gods.

It's not reassuring at all that it's only the political actors who are arguing against cuts because Social Security is not contributing in any way to the deficit or the current economic challenges. The last people who should be advocating for this are the policy people and the fact that they are is very disturbing. It's either fantasy or corruption.


Update: The Hill article frames the social security issue in an interesting way:

The trust fund itself has a theoretical $2.6 trillion surplus, but that money has been spent by the federal government like general revenues. The payback has arrived at a very difficult time, when Washington is running a $1.6 trillion budget deficit.

Actually, the government invested the money in Treasury bonds. So I have an idea. Instead of failing to pay off the Treasury bonds that are owed to average Americans, we tell all the wealthy aristocrats who put their millions in T-bills that we aren't going to pay them instead. The American workers are not the only ones who invest in the American future. There's no reason why they should be the ones asked to take a lower return.


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digby 3/15/2011 01:30:00 PM