Boehner-Led House Vote On Debt Only a Gesture – Senators Reid and McConnell Will Come Up With a Compromise – Serious Spending Reform Only After 2012 Elections – Meanwhile Urgent Issue of Sputtering Economy Will Not Be Addressed – Too Much Rancour in Washington

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By Paolo von Schirach

July 29, 2011

WASHINGTON – US House of Representatives Speaker John Boehner finally managed to have his debt ceiling measure passed by his reluctant, (and openly rebellious), Republican majority. This happened Friday, July 29, evening after he had to delay the vote on Thursday, as he lacked enough backers. Even after reworking done to address the angry critiques of his fellow Republicans, though, the Boehner bill passed with only 218 votes, the bare minimum. So, the Speaker is humiliated by his own troops and his Republican caucus is now openly divided. Funny thing is that this vote (damaging for Boehner) doesn’t matter anyhow, as the Democrats holding the majority in the Senate are not even going to take this proposed legislation into consideration. So, this whole thing was pure posturing. A gesture to be able to say: “Well, we did our bit. We passed legislation that addresses the problem”.

House vote is pure posturing

Yes, except that it does not. At least not in any serious way. And everybody who is not utterly insane knows this. Tying up raising the debt ceiling to a constitutional amendment requiring balanced budgets? It looks nice in theory. In practice this does not mean anything, as it is absolutely impossible to get the super majorities necessary pass a constitutional amendment in this fractured political climate. And absolutely everybody knows that.

Senate will hatch a compromise

In the end, we shall probably have some kind of compromise on raising the debt ceiling hatched in the Senate where there is a slightly more collegial spirit –even among political enemies. Expect Majority leader Harry Reid and Minority Leader Mitch McConnell to come up with something during the week-end. As I previously stated, right now the US Government should do the bare minimum and end this nonsense, (obviously believed by some to be instead a truly substantive issue worth fighting for), of trying to transform the entire structure of the US Government with one magic stroke. Imagine this TEa Party inspired fantasy: “With one vote we raise the debt ceiling, yes, but we cut trillions of future spending, this way ending fiscal irresponsibility and ushering America into a new age of thrift and probity”. Talk about dreams……

America needs entitlement reform, but not in this climate

I repeat: America seriously needs to address the staggering and growing cost of public spending, in particular the cost of large and popular entitlement programs that started decades ago under completely different assumptions regarding cost and number of beneficiaries. Social Security goes back to the Great Depression and President Franklin Delano Roosevelt. Medicare goes back to 1965 when Lyndon Johnson was President. Nobody suspected at that time that entitlement programs would grows this much and end up eating more than 60% of the entire federal budget. And, as they keep growing, unless something is done, they will ruin America financially.

Cut spending

And the rest of the US Government keeps growing as well. Contrary to popular belief, by historic standards, the defense budget, while huge in absolute terms, (about $ 700 billion), is actually smaller both as a percentage of GDP as well as a share of federal spending than it used to be. Still, under any plausible scenario, defense will have to be cut, along with entitlements and all other non defense discretionary spending, from transportation, to agriculture. All this needs to be done. But it cannot be done now. Not in this climate.

Consensus on reform?

America needs to reform its social programs in order to contain cost. But this is going to be horrendously complicated, as there are huge vested interests and deep ideological ideological divisions involved. Tea Party conservatives want to go back to a mythical, self-reliant, do- it-yourself America in which people took care of themselves without counting on any public assistance. The pioneers went West with guts and little else. They were not expecting help from Washington.

Yes, all true. Except that the Frontier is gone and the great grand children of the pioneers kind of like to have juicy programs, Social Security and Medicare. And people on the left point out that it is the humane thing to do. Left on their own, without much support from families, the elderly would end up as an impoverished lot, without precious public welfare.

Americans want a welfare state. But how big?

You see how complicated it is to transform the substance and reduce the costs of decades old programs that give a lot to people? In the end, at least one thing is clear. It is quite obvious that most Americans want some kind of welfare state. But the real issue is in agreeing how large a welfare state and how we pay for it, as running bigger and bigger deficits to make up the difference between revenue and costs is no longer an option.

Health care cost is the number one issue

And, even more fundamentally, as health care is by far the biggest problem regarding skyrocketing costs, any reform will have to look into the broader issue of the completely out of whack economics of US health care. For no good reason, America has extremely high and rising health care costs, with no appreciable superior quality of service delivery. As the Government ends up paying the bills for services priced elsewhere, it is high time to address why health cost grow so much in America.

Do this later

All this will have to be done. But it will not be done now, in the context of the debt ceiling. And most probably it will not be done between now and the end of Obama’s first term. I would expect no substantive debate and no meaningful reform of anything between now and the November 2012 elections. The well has been poisoned. The atmosphere is way too negative to even start a conversation on gigantic, complex problems like health care costs that involve the entire US population and hundreds of thousands of providers, not to mention health insurance companies and pharmaceutical corporations. An issue that absorbs now a staggering 17.5% of US GDP is complicated by definition. I pray that there will be at some point a renewed sense of national unity on this and that a workable reform that maintains service while containing cost will be found. But who knows when.

The economy is doing badly

Unfortunately, as if we did not have enough large, systemic problems, Washington is now confronted with the additional challenge of a sputtering economy. As the Congress is tied up in knots trying to figure out what to do prior to the August 2 deadline on raising the debt ceiling, we just got the very bad news that the US economy grew just a bit more than 1% in the second quarter, after a dismal performance in the first. No chance to cut down the horrible 9.2% unemployment rate with this kind of (almost no) growth. If the US economy is not revived, this dark reality may overshadow almost everything else. You may balance the Federal Budget. But if we have zero or close to zero growth what good does that do? America used to be the land of enterprise, risk takers and innovators. What happened to that spirit?

Politically, a bad economy is good news for the Republicans

But forget about bipartisanship even about reviving the economy. You see, a weak economy hurts politically the incumbent president, Barack Obama. Why on earth would the archenemy Republicans want to cooperate with the White House so that things may actually improve in the next few months and Obama gets the praise and possibly re-election? A depressed economy is bad for America. But it is politically great news for the Republicans. In fact, if it gets worse between now and the 2012 vote, even better. Sadly, this the state of US politics: you want your country to hurt, so that your political opponent gets the blame.

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