Sunday, July 24, 2011

What might FDR have done about the debt limit?

It took some time, but President Barack Obama finally got mad. After Speaker Boehner ended negotiations over the so-called "grand bargain" with the White House, the president put together a hasty presser to announce the breakdown, as well as his concomitant exasperation at the fact that his political enemies just keep on picking up the football every single time he tries to kick it. The fact that Speaker Boehner walked out of the negotiations is nothing short of astonishing, given the fact that the $800 billion in revenues that constituted the GOP's "half" of the compromise were actually based not on actual increases, but rather on just the opposite: the theory that by lowering tax rates, tax revenue would increase because of growth. Of course, the fact that these newer rates had to be associated with closing egregious loopholes was just too much for Boehner's caucus. This is what it took for Obama to realize that the only form of negotiation House Republicans will accept is outright capitulation and that negotiating in good faith has no productive purpose.

But if today's tea-infused GOP were even one-tenth as sane as they were under the speakership of Newt Gingrich, the rank-and-file Democrats would have been stuck with a raw deal that would have included cuts to Social Security and Medicare benefits and even a flattening of the progressively graduated income tax—a deal that a Democratic president put on the table. Whether such a deal arose through desire or necessity is irrelevant; it would have likely demoralized Democrats while allowing the right wing to blame Obama for the very cuts that it was insisting on. And once massive spending cuts and immediate deficit reduction had been accepted in all relevant quarters as the consensus path toward financial health and fiscal responsibility, the only question left was how far Obama was willing to accede to the adamantine rigidity of the grand old tea party before deciding that a deal that was getting worse all the time was in the end not worth making.

The only recent president who has faced an economic crisis more prolonged or more severe than the one our economy faces was the progressive legend Franklin Delano Roosevelt, who faced down both the Great Depression and the Nazis with equal aplomb and bested them both, and the contrast between how Obama is handling his economic showdowns with Republicans entering his reelection and how Roosevelt handled a similar time in his presidency could not be more clear. Obama has wanted to bring the nation above politics and create a grand bargain that incorporates ideas from both parties in an attempt to prove that our country is not as divided as our politics suggests, and he has, in his own words, been repeatedly left at the altar by Republicans with no conscience who want nothing more than to destroy him and his presidency. President Roosevelt, by contrast, was ideological: he was convinced that his way of managing the economy—the Keynesian approach of government as the spender of last resort—was right, and the austerity methods of the Republicans were wrong.

Unlike Obama, Roosevelt did not accept the conservative meme that macroeconomics and microeconomics have the same fundamental principles and that government has to "live within its means like families do." Instead, Roosevelt understood that economic downturns reduce national income and that reduced national income leads to further downturn, creating a deflationary cycle that can only be broken when government steps in to put people back to work and break the cycle—a consideration that came second to balancing the budget. At a campaign speech on Oct. 1, 1936, in Pittsburgh, Roosevelt outlined exactly this case:

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