We are now less than a week away from what many economists, ratings agencies and the International Monetary Fund have warned could be a calamitous default on U.S. government debt if lawmakers fail to authorize new borrowing. And yet, we are no closer to a solution than we were last night, when President Obama and House Speaker John Boehner delivered dueling national addresses seeking to blame each other for the crisis.
Neither speech was all that surprising, and neither seemed to move the needle on Capitol Hill. Democrats in the Senate are moving ahead with a vote on their plan to cut $2.7 trillion in spending to offset an equivalent increase in the debt ceiling through 2012; Republicans will hold a vote on Boehner’s proposal to raise the debt ceiling in two steps, first by $1 trillion coupled with $1.2 trillion in immediate cuts, then again early next year with another $1.8 trillion in cuts to be agreed upon later.
There was, however, one notable difference between the two speeches last night: Boehner used his to explain why compromise is unacceptable; Obama used his to explain why it’s crucial. In fact, at this point, the president is basically the only person left in Washington who still seems to think a “grand bargain” of some sort is possible.
Depending on your inclination, you might interpret his remarks as mere politicking: He’s trying to preemptively blame Republicans for their intransigence should lawmakers fail to reach an agreement by next week. Boehner, of course, is betting that voters don’t want compromise, they want cuts. (Polling on this seems to be mixed: The Republicans get even lower marks than Obama on this issue, but large numbers of Americans are also against raising the debt limit altogether, apparently.)
At this point, continuing to seek a grand compromise that cuts $3 trillion in spending and raises $1 trillion in revenue, as Obama has proposed, might seem foolish: All the uncertainty around the debt limit has markets jittery, and if lawmakers fail to raise the debt ceiling, the government will have to make massive, immediate cuts to government spending that could seriously inhibit our already tenuous recovery. As some commentators, like Paul Krugman, have noted, a short-term agreement that simply takes this issue off the table until the 2012 elections are over — at which point, incidentally, Obama can unilaterally allow the Bush tax cuts to expire, thus generating new revenue — might be the better solution for now.
Why is a “grand bargain” unachievable? It’s not, as you might think, entirely the fault of Boehner and Obama, or of Congressional leaders. The real reason, as Ezra Klein points out this morning, is the difference between the Democrats’ and Republicans’ constituencies: Democrats are willing to stomach compromise, but large numbers of Republicans aren’t. That’s not just according to polls, that’s according to Republican lawmakers themselves.
Even Boehner’s proposal, which relies on deeper and more immediate cuts than Obama had been seeking, doesn’t seem to go far enough for supporters of the Tea Party. The Wall Street Journal reported on Tuesday that Rep. Jim Jordan, a leading House conservative and chairman of the 178-member Republican Study Committee, was “confident” that there were not enough votes to pass Boehner’s two-step proposal. The immediate $1.2 trillion in cuts, followed by the additional $1.8 trillion next year, are too small, Jordan said.
Senate Majority Leader Harry Reid’s $2.7 trillion proposal, meanwhile, is unlikely to attract the seven Republican votes needed to pass the Senate. The impasse over a long-term deficit reduction deal, then, seems unbridgeable, which means that only a short-term plan to ensure that the U.S. can keep paying its bills next week is likely. Either that or a default, but the persistently low interest rates on 10-year government bonds would seem to indicate that investors consider a default unlikely.
A short-term deal might seem like a failure to some, and it may well be. But for others, it’s actually better than the “grand bargain” Obama was pursuing, which would have raised far less in taxes than even the president’s bipartisan fiscal commission had proposed, lifted the eligibility age for Medicare and cut Social Security benefits by roughly $200 billion. A plan like that would retard economic growth, not encourage it, critics say, and unfairly burden the lower and middle classes, already hit hard by unemployment.