Business & Economics

The GOP’s war isn’t over. It’s only a ceasefire

Robert Reich

The war isn’t over. It’s only a cease-fire.

Republicans have agreed to fund the federal government through January 15 and extend the government’s ability to borrow (raise the debt ceiling) through Feb. 7. The two sides have committed themselves to negotiate a long-term budget plan by mid-December.

Regardless of what happens in the upcoming budget negotiations, it seems doubtful House Republicans will try to prevent the debt ceiling from being raised next February. Saner heads in the GOP will be able to point to the debacle Tea Partiers created this time around – the public’s anger, directed mostly at Republicans; upset among business leaders and Wall Street executives, who bankroll much of the GOP; and the sharply negative reaction of stock and bond markets, where the American middle class parks whatever savings it has.

The saner Republicans will also be able to point out that President Obama means it when he says he won’t ever negotiate over the debt ceiling. The fact that he negotiated over it in 2011 is now irrelevant.

On the other hand, there’s a significant chance of another government shutdown in January. By then we’ll be well into the gravitational pull of the 2014 midterm elections. Every House member is up for reelection – mostly from safe (often gerrymandered) districts in which their major competitors are likely to be primary opponents from the Tea Party right.

These opponents will be challenging them to show what they’ve done to sandbag Obamacare and shrink the size of government. The President and the Democrats have made it clear they’ll protect Obamacare at all costs. Which means the real action between now and January 15 will be over the federal budget. The threat of another government shutdown is the only major bargaining leverage House Republicans possess in order to get what they consider “meaningful” concessions.

We know the parameters of the upcoming budget debate because we’ve been there before. The House already has its version — the budget Paul Ryan bequeathed to them. This includes major cuts in Medicare (turning it into a voucher) and Social Security (privatizing much of it), and substantial cuts in domestic programs ranging from education and infrastructure to help for poorer Americans. Republicans also have some bargaining leverage in the sequester, which continues to indiscriminately choke government spending.

The Senate has its own version of a budget, which, by contrast, cuts corporate welfare, reduces defense spending, and raises revenues by closing tax loopholes for the wealthy.

Here, I fear, is where the President is likely to cave.

He’s already put on the table a way to reduce future Social Security payments by altering the way cost-of-living adjustments are made – using the so-called “chained” consumer price index, which assumes that when prices rise people economize by switching to cheaper alternatives. This makes no sense for seniors, who already spend a disproportionate share of their income on prescription drugs, home healthcare, and medical devices – the prices of which have been rising faster than inflation. Besides, Social Security isn’t responsible for our budget deficits. Quite the opposite: For years its surpluses have been used to fund everything else the government does.

The President has also suggested “means-testing” Medicare – that is, providing less of it to higher-income seniors. This might be sensible. The danger is it becomes the start of a slippery slope that eventually turns Medicare into another type of Medicaid, a program perceived to be for the poor and therefore vulnerable to budget cuts.

But why even suggest cutting Medicare at all, when the program isn’t responsible for the large budget deficits projected a decade or more from now? Medicare itself is enormously efficient; its administrative costs are far lower than commercial health insurance.

The real problem is the rising costs of healthcare, coupled with the aging of the post-war boomers. The best way to deal with the former – short of a single-payer system — is to use Medicare’s bargaining power over providers to move them from  “fee-for-services,” in which providers have every incentive to do more tests and procedures, to “payments-for-healthy-outcomes,” where providers would have every incentive to keep people healthy. (The best way to deal with the latter – the aging of the American population – is to allow more young immigrants into America.)

More generally, the President has been too eager to accept the argument that the major economic problem facing the nation is large budget deficits – when, in point of fact, the deficit has been shrinking as a share of the national economy. The only reason it’s expected to increase in future years is, again, rising healthcare costs.

Our real economic problem continues to be a dearth of good jobs along with widening inequality. Cutting the budget deficit may make both worse, by reducing total demand for goods and services and eliminating programs that lower-income Americans depend on.

The President has now scored a significant victory over extremist Republicans. But the fight will continue. He mustn’t relinquish ground during the upcoming cease-fire.

Cross-posted from Robert Reich’s blog

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Comments to "The GOP’s war isn’t over. It’s only a ceasefire":
    • Robert Lunn

      We are now comparing debt levels to a period where GDP was an illusion. We’ve been spending more than taking in for decades, but to be more specific, look at the Bush years. Now, was that real GDP or GDP caused by excessive leverage? Measuring anything against this period seems foolish, including employment. Adding to this dislocation of things further comes with the supposed cure

      The Fed language alone, now, allows those at the top to actually increase leverage versus this period with LESS risk, as short rates are a sure bet to remain low. All of a sudden, most of the NEW income generation in the past 4 years or so is going right to the top. What do we do, spend a lot less than those we are taking from. (Savers, workers,labor, etc.)

      I don’t have to take the risk of investing above depreciation as capital can play the carry game. (Look at revenue to earnings and adjust for currency. Record EPS while the top line struggles. Pretty easy to see what’s happening.

      This is a new time when never have so many given to so few. Someone better start to think or we’ll all be in real trouble.

      [Report abuse]

    • Henry Krovitz

      The federal welfare programs have a budget greater than the combined budgets of the Departments of Justice, HomeLand Security and Energy. In 1967 about 14% of Americans lived below the poverty line. Between then and late 1990s we spent $57 TRILLION on welfare – at which point we found out that 15% of Americans live below the poverty line. 60% of residents of DC are on some kind of welfare program.

      In the meantime, our government debt is in the trillions and a devaluation of the dollar will happen – have no doubt. That will, of course, bring about “equality” since the savers will be the ones devastated. We do not have the money to support another entitlement program!

      Oh, and throw in the fact that it appears most of the people signing up for this new program are signing for MEDICAID – if that continues, the whole system will collapse – Reich and others like him will one day be the ones our children point to when they are taught who ruined America. The only thing I have not figured out is where does this supreme self-confidence come from to people like Reich, Krugman, etc? Is it perhaps not self-confidence but just extreme cynicism?

      Before 1968 Berkeley was a beautiful city. Now look at stretches of Telegraph – it looks like something out of Mad Max. This is what this lumpenintellectual wants to bestow upon the next generation across the continent…

      [Report abuse]

    • Anthony St. John '63

      This is the worst time in history to allow Social Sciences to be marginalized by politicians because we are already experiencing out of control social chaos in America and around the world, especially threatening as global warming consequences cause more droughts, degraded water supplies, food shortages for increasing billions of people resulting in hell on earth poverty along with increasing global temperatures that are accelerating violence faster than the human race has ever experienced before.

      Social scientists are our civilization’s ultimate defense to prevent the failure of our civilization. If social scientists can’t educate peoples around the world on threats and implementable solutions, then the future shall be totally unacceptable for the human race in this century.

      [Report abuse]

    • Kathleen Valerio

      Thanks for continuing to speak truth to power calmly and rationally. loved the movie. I’ve seen it twice now, and I’m hoping to be able to line up a viewing in Alameda. We “the people” definitely need to find more productive ways to get “our” government working for us. America is supposed to be about liberty and justice for all.

      [Report abuse]

    • artseagal

      So the “golden question” is how do we restore politics and convince the “republican and democrat communities-at-large” that it is in their best interest to vote for a candidate willing to work with an opposing party and compromise? Otherwise, should republicans gain more political control after the next elections, they will face the same tactics by the democrats and our government will be nothing more than an alternating changing of the guard where nothing gets done but thwarting the agenda of “the other party”!.

      [Report abuse]

    • Anthony St. John '63

      Prof. Reich, the real tragedy for our newest and future generations is that all of our institutional leaders are ignoring the imperative for creating solutions and implementation of solutions for destructive global warming consequences we are already experiencing.

      Too many of our politicians practice deranged rant rhetoric because that takes no effort and far too many people accept this practice.

      And, far too many citizens are deluding themselves into thinking we are solving short-term problems with deranged rant rhetoric, while we are totally ignoring threats to our civilization that are slowly overwhelming us.

      Thank you very much for your efforts to inform and motivate us Prof. Reich, but we need many, many more intellectual leaders like you to inspire us to save ourselves because politicians around the world are totally failing to do so since Churchill and Roosevelt saved us last time.

      [Report abuse]

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