Time running out. Deal still possible?

05 July 2011 |permalink | email article

Now, in less than a month the federal government will hit its legal debt limit. The conventional wisdom is that, commentators aside, politicians will do what they have done in the past and raise the limit.

But as Paul Krugman, the Nobel Laureate, continues to scold, this complacency disregards two important facts about the current situation: the fanatical extremism of the modern GOP, and the necessity for President Obama to stand up against further extortion.

Krugman notes that use of the debt ceiling to extort political concessions is something new in American politics and appears to come as a complete surprise to Obama who caved in over tax cuts, and Republicans expect him to do again.

Last December, after Obama agreed to extend the Bush tax cuts – a move that many people, including Krugman, viewed as a concession to Republican blackmail – Marc Ambinder of The Atlantic asked why the deal didn’t include a raise in the debt limit.

So failure to reach the debt deal on very many levels would have very bad consequences for the United States at a time when the economy is, as Krugman reminds, deeply depressed and would destroy hundreds of thousands of jobs and possibly millions more. “Mr. Obama must be prepared to face these consequences if he wants his presidency to survive.”

But on Sunday two senior Republican senators – John Cornyn of Texas and John McCain of Arizona – said they might be open to raising new government revenue as part of a deal to resolve the dispute over the federal debt ceiling,  Both warned there was little time to enact a comprehensive deal. Cornyn added that the problem with a minideal is we have a maxi-problem. McCain claimed victory last November because voters didn’t want their taxes raised and wanted more spending cuts.

But the underlying problem, as Krugman points out, is that trickle-down economics is making a comeback – specifically the idea that anything that increases corporate profits is good for the economy. No proof exists that giving corporations more money with no strings attached creates faster job creation.

Obama now must have the cojones and bully pulpit to sharply criticize GOP lawmakers for eliminating major tax loopholes to generate more revenue, saving billions to address the short-term federal deficit and long-term national debt.

123