The Showdown on the Debt Ceiling

As the President prepares to meet with congressional leaders today in hopes of hammering out a deal that will raise the debt ceiling and begin to address the nation’s long-term fiscal problems, three options loom.

The first, stalemate, is the least desirable. Congresswoman Michelle Bachmann has been on the airwaves saying that there is no great need to raise the debt ceiling, that the U.S. Treasury can continue to pay the interest in the national debt and simply fail to make other payments. It is, undoubtedly, her hope that such a situation would produce drastic cuts in federal spending. This is nonsense, and it is dangerous nonsense. In the first place, which bills would go unpaid? Social Security checks? Veterans benefits? Would the government shutdown? In one’s personal finances, you can pay your mortgage and put off the gas bill for a month, although you pay a penalty, making your financial situation actually worse. Such shenanigans are beneath us. More importantly, the inability of the government to pay any of its bills would send shockwaves of concern and dread through the markets, further crippling the fragile recovery and worsening our long-term fiscal situation even more.

The second option, and one that made the front page of the Washington Post, is the grand compromise. The President has, evidently, urged lawmakers to consider long-term changes to both Social Security and Medicare in order to cope with the fiscal mess. This idea is not quite as bad as a stalemate but it is close and it betrays three qualities in President Obama that are worrisome.

First, Obama likes to say he was not elected to do little things, but big things, but at this moment in our history, it seems that any kind of grand compromise would tilt heavily to the right, as evidenced by the suggestions of the various blue ribbon panels that have looked at the problem. But, when you are proposing changes in a program that touches the lives of most Americans, you had better have an explicit mandate to do so. President Obama did not campaign on changing Social Security and he should be careful of doing so.

Second, any changes in Social Security and Medicare are bound to hit the working class the hardest. Mercifully, the President has not suggested raising the retirement age, an idea that may make sense to him and his advisors, all of whom presumably can imagine themselves working into their 70s. They work at desks, not in mines or in hospitals or on construction sites where the prospect of heavy lifting at age 68 is a lot less attractive. I would consider a change in cost-of-living increases only if the GOP was willing to sign on to an increase in the top marginal rate. If the only thing the President secures is closing a few loopholes, better to leave Social Security and Medicare out of it.

Third, these decisions are political and the President and Congress all have their eyes on 2012. The President has long had difficulty appealing to white working class voters. Going after Social Security and Medicare is not the way to reach them. Defending these programs upon which they depend is his surest route to victory and, incidentally, the best way for him to prove himself worthy of the mantle of FDR, Truman, Kennedy, and Johnson. Most Americans embrace the idea of shared sacrifice, but there is not evidence the GOP would actually spread the sacrifice around.

Which leads to the last option: Not so much a compromise as a bit of common ground. If the GOP agrees to closing some tax loopholes, even in exchange for lowering other tax rates that might be more likely to stimulate the economy, and the Democrats agree to enough spending cuts to garner sufficient votes to lift the debt ceiling, that is the best solution. The President and the GOP could say: This was what we could agree on. These are the points upon which we can’t agree and upon which next year’s election will be fought. We have done what we can and what we must, but it is up to the American people to decide whether they think the Democratic or the Republican approach to the long-term fiscal problems is preferable.

There is not much common ground between the two parties right now. But, there should be enough to fashion a bill that makes the long-term problems marginally better and allows the American people to express their wishes. I hope – oh, how I hope – that the President understands Democrats did not vote for him so that he can go down in the history books for achieving a grand compromise if such a compromise means throwing the party’s traditional commitment to the economic well-being of the working class under the bus. And the Republicans must understand that with political power comes political responsibility, and their failure to take action on the debt crisis would, and should, make them look like adolescents incapable of responsible leadership.