WHO IS TRYING TO HOLD THE GUN TO WHOSE HEAD?

by Gennady Shkliarevsky

The conflict over the debt limit is reaching its critical stage.  All facts point to one conclusion:  the Democrats and the Republicans stand on opposite poles, and the prospects for a solution are very dim.  Naturally, the two sides blame each other.  The main battle for the minds of the American voters has started.  Americans voters must make up their mind.

Politics rarely, if at all, offers a choice between good and bad.  The more likely choice is between bad and worse.  This is the choice that Americans face today, and they have to make it right.

Making the right choice requires taking stock of what is out there.  The choice is not going to be easy.  The only point on which both sides agree is that Social Security and Medicare should be off-limits in budget talks.  There is no agreement on everything else.

The Democrats refuse to negotiate the debt limit and budget cuts jointly.  They demand that the Republicans must vote on the debt unconditionally.  They also insist that all other matters should be negotiated separately AFTER increasing the debt limit.  Their main proposal for reducing future deficits includes tax increases on the wealthy and big corporations.  They also propose to reduce spending on healthcare by giving more power to Medicare to negotiate prescription drug prices.

The main demand of the Republicans is that fiscal matters and the debt issue should be negotiated jointly, not separately.  The Republicans also want to put caps on discretionary federal spending, roll back the Democrats’ climate agenda, and abandon attempts to cancel the debt on student loans.

So, whose plan is better?  First of all, there is one difference that may not be all that important, but it is significant.  The Democratic plan will reduce future deficits by three trillion dollars; the reduction under the Republican plan will be five trillion dollars.  Two trillion dollars may not be a lot, but it is certainly nothing to sneeze on.

There is definitely more to the differences between the two plans.  Our economy is in a recession, if not a depression.  We have to work our way out of this situation.  The main problem we face is growth.  We have to grow out of this mess by creating new wealth.  By increasing taxes on the wealthy and corporations, we definitely reduce their capacity to make investments.  How can we grow and increase wealth if we do not invest?  Moreover, investments should come from those who know how to create wealth.  The government only knows how to redistribute wealth, not how to create it.

The Democratic strategy for negotiating the debt and budget cuts separately should be a non-starter.  The Republicans will be stupid to accept this strategy.  Debt is their trump (pun unintended) card in negotiating the budget.  If they vote on the debt separately, they give up this card and untie the hands of the Democrats in negotiating budget reductions. They will, in essence, give the Democrats the gun that the latter can then hold to their head.

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Gennady Shkliarevsky is Professor Emeritus of history at Bard College.

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