The Endless Cliff

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Beyond yesterday’s narrow escape from the dreaded fiscal cliff are … more cliffs. President Obama and Congress averted one fiscal calamity of tax-hikes-for-all only to face even steeper cliffs—the sequester, the debt ceiling, the Social Security shortfall, ad infinitum. It is a fiscal Wizard of Oz, an extended odyssey with perils on every side.

The question progressives are asking themselves this morning is whether President Obama settled for too little in the fiscal mini-deal, having traded away his best single piece of leverage—the automatic tax increase on all Americans scheduled to hit today unless Congress acted.

Some, like our colleague Robert Reich, have argued that it would have been better to “go over the cliff”—let tax hikes briefly take effect on everyone, thus increasing pressure on Republicans—rather than to make this agreement.

Mercifully, Obama backed off any “grand bargain.” The deal was a defeat not only for the Republicans but for the Fix the Debt corporate gang. It spared the economy cuts in Social Security or Medicare (for now). 

But on the other side of the ledger, it included no agreement to raise the debt ceiling. The impact of the automatic “sequester” of $120 billion in other spending cuts was postponed only 60 days. These issues will now have to be negotiated separately,

Republicans convinced themselves that they will get to press for deep budget cuts all over again by holding the debt ceiling hostage; the need to extend the debt ceiling is their equivalent of the expiration of the Bush tax cuts—leverage on President Obama. It was that rationale, plus the need to prevent a tax increase on the bottom 99 percent, that allowed most Senate Republicans and enough House Republicans to tear up the Grover Norquist no-tax-hikes-ever pledge and vote for this deal.

Could Obama have gotten more? Quite possibly, though it was an accomplishment to keep all spending cuts out of the deal, at least for now. 

Progressive groups, led by the AFL-CIO and Democratic leaders in Congress, deserve a lot of the credit for holding Obama’s feet to the fire on two core principles on which the president delivered—no to cuts in Social Security and yes to tax increases on the richest. Obama did cave, perhaps needlessly, on only one key element: restoring the pre-Bush tax rates just for households with over $450,000 income for couples and $400,000 for singles rather than the $250,000 in the president’s original offer.

But the deal could have been a lot worse. And as recently as a week ago, when the White House was offering backdoor cuts in Social Security via changing the cost-of-living adjustment formula, it looked as if it would be.

What can we expect going forward?

President Obama, having discovered that toughness works better than premature conciliation, took a very hard line last night on the issue of the debt ceiling. Coming into the White House briefing room shortly after the House vote, he declared, “While I will negotiate over many things, I will not have another debate with Congress over whether they should pay the bills they’ve already racked up … .”

This, presumably, means that Obama, if necessary, will invoke his authority under the Fourteenth Amendment, which declares that debts of the United States shall not be questioned. It was not until the World War I era that the ritual of approving a debt ceiling was even asserted by Congress. This is a position long urged on Obama by Bill Clinton.

Yet unless Obama continues to play hardball on all fronts, the risk is that he will consent to budget cuts as the price of the next deal, at a time when the economy needs more public spending, not less. He needs not only more spine; he needs to alter the terms of debate, rejecting not only the ideology of Republican right but the economic idiocy of the corporate center, which has persuaded elite opinion (including at the White House) that recovery requires debt reduction.

When I was a student, one movie that totally grabbed me was a classic by the absurdist director Luis Buñuel called The Exterminating Angel. In the film, people at a dinner party find, incomprehensibly, that they are unable to leave the room. They end up staying for days, gripped by some kind of mysterious social paralysis. The movie ends with several sheep invading the room, which I took to be Buñuel’s surreal comment on herd behavior.

The behavior of political elites on the subject of deficits, debts, and the economic recovery requires some combination of Buñuel and his contemporary John Maynard Keynes to do it justice. With the economy stuck at about $1.5 trillion below its potential and at least 15 million people unable to find full-time jobs, the debate is fixated on the question of how to cut the deficit instead of how to restore jobs, wages, and output. Until President Obama changes the subject to the real issue of economic recovery, he will be mired in an enervating form of retrench warfare where budget cuts are inevitable.

He needs to isolate Republicans on the issue of how to produce a recovery, just as he did on taxes. Here again, public opinion is on his side if he will lead. Cutting Social Security and Medicare are no more popular than raising taxes on the middle class.


Can the President simply not make any deal with the House? No budget? No continuing resolution? How can the President make the Republican House back down? What's his source of power over the House?

What does "spine" mean? Do you imagine that the President can peal away constituent support from Republican representatives? We are talking about recently re-elected Republicans.

Republicans own the House; it's their political instrument. We can't do anything about it. Even if the President unilaterally extends the debt ceiling, Republicans still have power based in their control of the House. What do you suggest we do?

Obama's problem is that the Republicans have perfected the Nixonian "madman theory" tactic of negotiation (see ). They have convinced a lot of people, including myself and probably including Obama, that they are mad. The only way to counter this is to be behave crazily yourself. Something that Obama's personality and history prevent.

Robert Kutter....Are you saying that the Debt be damned? When do you plan on paying back the debt? When do you even plan on balancing 1 years budget? Who do you think is going to pay our national debt? Let me answer....our children and you my friend are engaging in a form of Child Abuse by leaving our children with more debt than they can afford.

Obama got his tax increases. whether that will help or hurt remains to be seen.
I simply cannot grasp why anyone would be against budget cuts and moving toward a balanced budget. Social security and medicare are not however entitlements, they are personal money we invested and let the government manage. Just because the government managed it poorly doesn't mean people aren't entitled to have their investment returned. Certainly had people been required to invest the same amount in the markets most seniors would be relatively rich today.

ckwn, I have to disagree with your description of Social Security and Medicare. They are each an _insurance_ program, run by the government and open to (and mandatory on) basically everyone.

They are insurance because they will pay out on the insured risk (living longer for Social Security, sickness for Medicare) regardless of the cost. All of us pay in in the form of contributions, but that money is not put in some savings account with your name on it, run by the government. It is either spent on current costs for insured persons, or it is invested, very safely and conservatively, in Treasury bonds, to be available for future costs of insured persons.

The actuaries at Social Security have done a good job of projecting long-term demographic trends -- which required an increase in premiums in the 1980s, because the insured risk (more people living longer, and thus drawing more payments) increased.

They (or Congress, which ignores the actuaries' advice) have done less well for Medicare. It's costs continue to rise faster than predicted -- partly because of improved (and expensive) technology, partly because private actors have figured out how to game Medicare ruthlessly. (Note that American per capita costs for healthcare are TWICE those of the next-most-expensive country's...and that country is Switzerland, one of the most expensive countries in the world, where one cup of coffee costs at least $5).

Medicare really is going broke, because we are spending inefficiently on health care which is rising in cost.

Notably left out of the right-wing's hysterics is military spending. The US could cut its military spending in half -- which would essentially end the budget crisis -- and STILL spend more than the next seven countries in the world COMBINED (and of those, at least four are allies). Health care spending is inefficent, but military spending is simply legalized theft by contractors (the money is NOT going to soldiers during and after their service, unfortunately, even when they need and deserve it).

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