Thursday, July 14, 2011

Debt Limit Politics – Disarray on the Right

As the deadline for increasing the debt limit that the Treasury has set, August 2, get ever closer, the pressure is getting harder to bear. Senator Mitch McConnell, mindful of the epic confrontation between President Clinton and Newt Gingrich in 1995, has apparently come to the conclusion that the Republicans cannot use the threat of default to achieve their policy goal of reducing the size of the government. He has consequently come up with a clever way to shift the political responsibility for raising the debt limit to the President. From his point of view, this accomplishes two main goals. From a public policy perspective, it ensures that the U.S. government will not default. It seems that Wall Street and other business leaders have given the Republican leadership an earful about the necessity to increase the debt limit, and these business interests are, of course, correct. The proposal also shields the Republicans from taking political responsibility for increasing the debt limit, freeing them to use the increasing public debt as a way to attack the Administration and other Democrats in the elections next year.

In an editorial yesterday, The Wall Street Journal supports McConnell proposal. While earlier editorials had taken the position that a "technical" default would not be that bad, the editors now write: "The tea party/talk-radio expectations for what Republicans can accomplish over the debt-limit showdown have always been unrealistic. As former Senator Phil Gramm once told us, never take a hostage you're not prepared to shoot. Republicans aren't prepared to stop a debt-limit increase because the political costs are unbearable. Republicans might have played this game better, but the truth is that Mr. Obama has more cards to play."

Liberal Democrats, such as Nancy Pelosi, are intrigued by the McConnell proposal. The liberals are worried that any "grand bargain" between the Republicans and the Administration would cut programs, such as Social Security and Medicare, more than they could support. From their point of view, the McConnell proposal would mean that would not happen, at least not now, and the nation (and the world) would be spared a default on the debt.

The more interesting political dynamics are on the right. Many of the House Republicans do not like the proposal because it does not achieve the spending cuts they want. While I would not phrase it this way, the WSJ editors are right when they write: "The entitlement state [?] can't be reformed by one house of Congress in one year against a determined President and Senate held by the other party. It requires more than one election."

On the other hand, the Republicans may be in a race against time, and some of them may realize it. As more of the baby boomers either become eligible for Social Security and Medicare or old enough to really care about these programs, they will be more difficult to cut. In addition, while some would like to characterize this issue as generational warfare, this ignores the demographic changes in the U.S. that do not favor certain Republican positions on other issues. Young people are, in general, quite socially liberal. For example, who would have thought ten or fifteen years ago that the movement to legalize same-sex marriage would have reached the point that it has today? Polls show that many young people are more accepting of gay marriage than their elders. Also, the growing Hispanic population is not supportive of the position of many Republicans (George W. Bush being a noticeable exception) on immigration issues. (That many young people are socially liberal is incidentally a distinct change from the Reagan years, when more first time voters were registering as Republicans than as Democrats. That cohort has helped the Republicans immensely and countered the more liberal baby boomers who came of age during the civil rights movement and the Vietnam War.)

Another problem for Republicans is that, if the U.S. remains in an economic slump, the support for social safety net programs will increase. While it is true that poor people are not major contributors to political campaigns and may not vote in the numbers that better-off people do, a prolonged slump will mean that more people who do not need programs such as Medicaid, unemployment insurance, and food stamps will personally know someone who does. It will also increase the fear of many people that they might lose their jobs and become dependent on these programs.

As far as the upcoming Presidential election is concerned, it is way too early to tell. President Obama has turned out to be more conservative on some issues than many of his more liberal supporters would like. It is hard to see the degree of enthusiasm for Obama from them that they manifested in 2008. The Republicans, though, do not have an inspiring set of politicians vying for the nomination. The candidate who would seem to have the best chance to beat Obama by appealing to independents and some Democrats is Jon Huntsman, but it is difficult to see how he can win the Republican nomination. Romney certainly has a chance, though he is suspected by those on the right, I believe correctly, as being less "conservative" than he pretends. His record in Massachusetts belies that.

But however the Presidential election turns out, the Republicans face some long-term problems, which may be why they are pressing so hard on government spending. They are probably making a mistake in not compromising a bit on revenue issues with Obama, since this may be the best chance they have. This may also be why liberal Democrats are intrigued by McConnell's proposal.

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