Irresponsible Brinksmanship

Am I missing something about this debt crisis? Let’s run down some of the more salient issues at play.

While the costs of two wars and fighting the recession play a role, the major cause of the build-up in debt is the revenues lost by virtue of massive tax cuts under the Bush administration. Not surprisingly, the tax burden placed upon US taxpayers is at a 60 year low. Despite these two salient facts, the Republican leadership will not countenance even a semblance of discussion on cutting the deficit by raising taxes.

Unemployment remains stuck at over nine percent: the rate among minorities is almost three times this amount. Republicans and Democrats alike have essentially given up on developing programs to reduce unemployment for the simple reason that such programs take federal funds.

At the same time that nothing is being done to reduce unemployment, Republican measures to control the debt favor substantially reduced spending on those safety nets such as Medicaid, unemployment compensation, and TANIF that cushion some of the misery associated with being out of work.

The brinksmanship being played over the debt ceiling only serves to exacerbate America’s economic problems. The prospect of a federal debt default, no matter how remote, has caused businesses to stop in their tracks. The economic optimism of a few months past has turned to growing investor pessimism over the ability of the government to govern responsibly.

The key word is ‘responsibly’. To be fair, the Republicans ran on platform promising fiscal responsibility, and it is clear that their message resonated with the majority of Americans. Republican control over the House of Representatives means they control how much money is raised and spent. They have been successful in cutting government spending and can continue to do so.

The debate that has been opened up between the left and right on the proper long term course for America – further tax cuts and heavy spending reductions vice less severe cuts to entitlements along with some tax increases – is a good example of responsible government. It needs time to be fully vetted and explained to the American voters: let the 2012 elections be a referendum on which way Americans wish to go.

Holding the Democrats hostage by tying a vote on the debt ceiling to massive cuts in spending with no tax increases is irresponsible brinksmanship. This is different than the clash between then House Speaker Newt Gingrich and President Clinton that led to a short closure of the US government. In this case the long-term creditworthiness of the United States is threatened: the ramifications of even a short default are long-term in nature, at a minimum raising the cost of borrowing by the US government (paid in the end by US taxpayers).

There is no need for the Republicans to be so heavy-handed at this point in time. The risks to American economic recovery and financial solvency are too great. Although the Republicans control the House of Representatives, the Democrats still control the Senate and the White House. With this in mind, a compromise would seem reasonable. Republican leaders should agree to the increase in the debt ceiling that is required for American solvency while continuing the debate with President Obama on the proper future role for the federal government. If they have it right, Republicans will be rewarded with control of the Senate and the White House next year.