Tag Archives: political economy

Musings on Debt Ceiling “Negotiations”

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Supposedly, they’re under way.  Or not, depending on the credibility of major players: Senate Majority Leader Harry Reid (D, UT), Treasury Secretary Jack Lew, and President Barack Obama.

In testimony before the Senate Finance Committee, Lew had a number of things to say.  Some might call them threats:

[H]e will be unable to guarantee payments to any group—whether Social Security recipients or US bondholders—unless Congress approves an increase in the federal debt limit.

But of course, he can.  It’s his job, for one thing, to make exactly this kind of prioritizing decision.  Further, Social Security payments have nothing to do with this.  The Social Security Trust Fund is phat with Treasury Notes in IOU for the various Federal government borrowings that have raided the Trust Fund over the years.  These can be sold on the open market to raise the necessary payment monies….

Moreover, the government’s revenue collections cover the scheduled debt payments by a factor of 10:1 or 11:1.

And

…in an unprecedented situation in which he would be relying entirely on the erratic flow of incoming revenue, the economy would suffer and there would not even be certainty that the government could make all interest payments.

Also not correct.  As just noted, there’s plenty of money coming in to cover the payments, regardless of the cash flow from time to time.  The uncertainty in the markets is almost entirely generated by misleading statements from government officials who surely know better.  The rest of the uncertainty flows from the Democrats’ flat refusal to negotiate.

Lew also trotted out the usual excuses, including, for instance:

[T]he administration will face a series of difficult decisions even if Treasury can avoid what the credit-rating firms consider a default.  In a scenario where federal spending will far exceed revenue, he…say[s] that the administration would have only imperfect options in deciding whom to pay.  [He pushed] Republicans to decide whom they wouldn’t pay—Social Security recipients or veterans.

Far from the apocalypse that such cynically false choices imply, this rather puts a premium on bringing spending down to within existing revenues.   We’ve seen, though, how anxious the Democrats are to bring spending under control.  They’re addicted to it, and they demonstrate this with their omnipresent mantra of a “need” for continued high spending with its continued borrowing.  Never mind that, were spending reduced below revenues, continued borrowing wouldn’t be necessary.

Finally, coming out of Thursday afternoon’s meeting between Obama, et al., and 18 senior members of the House Republican caucus concerning the possibility of an increase in the debt ceiling that would be good for six weeks more of borrowing, Obama indicated through his Press Secretary, Jay Carney, that he would sign such a bill and enter into negotiations over borrowing, spending, taxation, entitlement programs, and so on, even though the debt ceiling bill would not contain funding to reopen the government from the Democrats’ shutdown.  Sounds like progress, yes?

Reid, coming out of the same meeting answered a reporter’s question on that: would the Senate pass the House bill and send it to the President, with its lack of funding for reopening the government, and the negotiation stipulation?

Not going to happen.

And there we are.  The Democrats in the Senate won’t negotiate, and they’re willing to force a default on our debt if they can’t get their way.  And they’ve overruled the President to get there.

Update: Now it appears that Obama has obeyed Reid’s instruction.  Fox News is reporting this morning that Obama now is echoing Reid’s “Not going to happen” and is rejecting the kind of deal he’d said yesterday, through Carney, that he would accept.

The Democrats really are bent on keeping our government closed and on threatening the blowup of our credit rating and with it our economy if they can’t get everything they demand.

Upward Mobility and the Obama Recovery

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Churn is a measure of job turnover of a particular type: workers leaving one job in favor of another (usually a better one and usually in another company), while other workers are hired to fill the just-created vacancy.  The net result is the same level of employment as before, hence “churn” rather than “new hires.”

In the time before the Panic of 2008—2007, for example—churn was working to the tune of 3 million workers per month: 3 million workers would quit their present job and go to another job to work.  Last July, that number was 2.3 million.  The churn isn’t churning.

The reasons this drop in churn rate matters include these two items: the job just left is an existing one, and the employer knows its value, especially compared to a new job the employer created as a result, for instance, of an expansion in that company’s production capacity or sales demand.  That existing job, as a known quantity, is more accessible to an unemployed worker or a worker in an existing, “lesser,” job in another company.  The newly created positions, as somewhat of an unknown, get more pickiness from the employer if for no other reason than that the employer does not have to fill the new position as much as he needs to fill the now-empty existing one.

The other reason churn matters has to do with why the workers are leaving their existing jobs.  These folks generally are looking for, or have found, better ones.  The import of this is in Jason Faberman’s (a Federal Reserve Bank of Chicago economist) comment about the sharp drop in churn rate:

Nobody’s leaving for a better job.  These guys aren’t moving on to better jobs, which means their positions aren’t opening up for the unemployed.

The better jobs aren’t there, it’s hard to move with a mortgage that makes it hard to sell a home, there’s little confidence in getting a new job somewhere else—the job actually has to be in hand—the reasons for the lack of departures are varied, but they all aggregate to the same outcome: the upward mobility that has been one of the engines of American prosperity generation is being destroyed.

Ben Casselman, writing in The Wall Street Journal at the above link, expanded on that:

Changing jobs is one of the most important sources of wage growth, particularly for younger workers.  With unemployment for those under age 25 still elevated at 15.6%, many of those lucky enough to have jobs are playing it safe by staying put—and as a result may put themselves at a permanent earnings disadvantage.

“If you miss that window when you’re young, that could have really long-term consequences,” said Toshihiko Mukoyama, a University of Virginia economist.  “They cannot go up the job ladder.”

And that’s an outcome of the Obama Recovery from the Panic.

What Americans Are Saying

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…about the Democrat-manufactured debt ceiling impasse:

A Fox News national poll asks voters to imagine being a lawmaker and having to cast an up-or-down vote on raising the debt ceiling:  37% would vote in favor of it, while 58% would vote against it.

That includes majorities of Republicans (78%), Independents (57%), and Tea Partiers (88%, and which includes a considerable overlap with Republicans).  It’s only the Democrats who are willing to borrow and borrow and borrow with debt moving on in its rapid pace (57% of them).

A majority of Americans, not entirely contradictorily, also say it would be acceptable to raise the debt ceiling if “major cuts in government spending” accompanied the ceiling raise—62%.  Only 27% think it’s a good idea without accompanying spending cuts.

On the standard Who Do You Trust question, 48% of Americans trust Republicans to “cut government spending enough to make a difference in the budget deficit while at the same time not cutting so much that valuable programs are hurt,” compared to 39% trusting President Barack Obama to do that.  This is a sharp shift from last spring, when the split was 42% Republican and 45% Obama.

Obama and his Democrats need to get off their high horse and listen to the American people, their collective boss.

Debt Default Redux

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Senate Majority Leader Harry Reid (D, NV) continuing his meme of refusing to negotiate, says

We not only have a shutdown, but we have the full faith and credit of our nation before us in a week or ten days[.]

Never mind that this could have been settled much earlier in the year, but for Democrats’ and President Barack Obama’s intransigence:

Reid and other Democrats blocked numerous attempts…to approve House-passed bills reopening portions of the government.

And there’s that whole “Presidential” series of “veto threats against GOP spending bills” thing.  The “GOP” part is the kicker.

In the end, it’s clear that, having gotten the government shutdown for which the Democrats have fought so hard, they’re now bent on default.

Again, I ask, why?  I also ask against this backdrop: from Section 8 of our Constitution we have

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States….

Paying the national debt isn’t just one of only three purposes for which the Federal government is permitted to “lay and collect Taxes;” it’s the first purpose.

And from the 14th Amendment we have

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

The Federal government collects in tax revenue roughly 10 times the amount of money required to make the payments on the national debt as they come due.  Suggesting that that’s in danger, that debt default is a risk, is dishonest.