I realize that at least in the short term, the shutdown crisis has been averted. But as a fiscal conservative, I'm absolutely livid at the stonewalling of any spending concessions whatever by the Dem-controlled Senate and White House. We have a $17T national debt (higher than our GDP) and by many accounts over $80T in unfunded entitlement liabilities--and the lowest deficit in 5 years has been estimated at $700B--and this is with historically low federal interest rates. We've never reached $3T in federal revenues. Part of the reason why this is important has been underscored by a controversial 2010 study by Reinhart and Rogoff, which suggests a high debt burden has an adverse effect on economic growth (which is correlated to job growth). Spending cuts in Washington don't even mean cuts in baseline spending; they tend to be gimmicks like trimming pre-planned automatic budget increases; nobody is even seriously discussing paying down debt.
I was uncomfortable with the GOP using ObamaCare funding during negotiations. I understand the economics behind the argument: it's easier and cheaper to terminate a bad program in the bud, not to throw good money after bad. I also understand why the GOP felt it was on good group challenging a program that has always been opposed by a majority of the American people since before it was passed. No one who is a regular reader of this blog can doubt my opposition to the Unaffordable Care Act. But as a practical matter, I think it would be wise to give the Dems all the rope they need to hang themselves. For example, the young adult group has been a key constituent group during Obama's elections. But they have also have found it hard to find work (after accumulating huge educational loans) in this low-growth economy, and ObamaCare forces them to subsidize the healthcare of older, sicker people--in some cases, at premiums of multiples above what they would pay on their own before ObamaCare. But if the Dems don't get young people to sign up in large enough markets, the business model doesn't work; they either have to kick in massive subsidies, authorize compensatory premium increases and/or risk vendors dropping out of the exchanges. Money is fungible; I think it's simpler just to impose a uniform spending cut across the board and give managers some discretion in terms of how to implement cuts in their areas. I think you have to find ways of getting cuts into the 60% or so of mandatory spending, not just ObamaCare spending.
So this is the background for discussing Jack Lew's comments on
October 6 with substitute host Guthrie and
October 20 with regular host Gregory.
SAVANNAH GUTHRIE:
Let's talk about this shutdown, we're six days in. Has there been any real, permanent damage to the economy from this shutdown so far?
JACK LEW:
Yeah, Savannah. The shutdown is harming people every day. I think we're seeing that in the kind of ironic actions of those who chose to shut the government down item by item, trying to reopen the government for things as they discover that there's real pain out there. If the shutdown ends quickly, we'll recover from the damage. If it goes on for a longer period of time, it will do more harm..
Of course, the principal harm was to "non-essential" government workers whom consume, not contribute, to the nation's wealth. Keep in mind that there have been
17 prior shutdowns since the 1970's, and any furloughed workers were awarded back pay. The "ironic actions" Lew is referring to refers to piecemeal funding initiatives passed by the House, particularly for high-profile funding which were being used in transparent attempts by the Dems to manipulate public opinion against the shutdown. Reid refused to move on piecemeal bills, instead demanding a comprehensive bill. In the second interview, Lew fleshed out better what he meant by economic damage:
DAVID GREGORY:
But what damage has been done? Can you lay it out plain and simple?
SECRETARY JACK LEW:
So, there are going to be people looking through the details of the economic data for weeks and months to come, both in government and out of government. We did see our borrowing costs go up in the short term. We know that from the shutdown, there was a loss of economic activity. I can't give you a number today of what is another direction. The direction is that it took an economy that is fighting hard to get good economic growth going, to create jobs for the American people, and it took it in the wrong direction. Our job in Washington is to move things in the right direction.
This one was a little bit scary because it got so close to the edge. And I think that what I heard from them was that they have confidence in our economy. Much as the business people I talk to have confidence in our economy. I think what we need to do here in Washington is to go from the coming together on Wednesday night where we saw a strong bipartisan majority do the right thing, and make progress from there. Show that we can work together.
Much of this, of course, is nonsensical political spin, e.g., the vacuous discussion about the direction of the economy. But let's be clear: let us accept for the moment the idea that economic statistics from the government are critical to the economy. Why did the Administration furlough those involved in providing these data? We know that the market has its own sources of economic and industrial data not available from the government. The fact of the matter is that Obama and Reid announced that they wanted all or nothing; they were unwilling to negotiate. In the real world, once you hit your credit limit, you have to pay a premium interest rate given the higher risk of repayment. Obama and Reid felt they were "too generous" in the 2011 deal (which were literally pennies on the dollar versus up to 40 cents on the federal dollar borrowed).
As for borrowing costs going up, first of all, just a hint that the Fed might start to taper off its asset buying program was enough. TLT, a 20-year Treasury bill fund, is down over 10% this year (mostly from May to September), but is actually up over the past month with the shutdown. Of course, the market doesn't like uncertainty including the shutdown, but there are two parties to the standoff. And when one side refuses to negotiate in good faith and demands the other side to capitulate, they are part of the problem.
JACK LEW:
Congress could act today. The optimistic view of things is there's a majority in Congress right now that would vote to reopen the government. They just need to bring it up for a vote. They could bring it up today.
SAVANNAH GUTHRIE:
There was a senior administration official quoted in The Wall Street Journal this week saying, quote, "We are winning. It doesn't really matter to us how long the shutdown lasts," quote, "because what matters is the end result." Does that reflect the view of the administration behind closed doors?
Lew, of course, was playing partisan politics. He wasn't referring to several bills passed by the House which would fund all or part of the government. He was referencing claims that some GOP centrists might vote for the Administration-demanded "clean CR" if Speaker Boehner put it on the House floor for a vote. The Guthrie question reflects the fact that the GOP has taken a higher comparative beating in the polls, although Obama and Congressional Dems are also taking a hit. Predictably, Lew denied it, but the fact is the Dems would be negotiating if the polls were backing the GOP.
SAVANNAH GUTHRIE:
You mentioned that Republicans have passed a series of bills in the House to fund parts of the government, such as FEMA, such as the V.A. Why not take them up on that offer?
JACK LEW:
It just doesn't work. I mean, they need to open up the whole government. You can't cherry pick an item here, an item there. There are too many important things the federal government does. And they need to open it up and they could, because a majority is ready to do it. I started out my career here in Washington working on the Hill. I worked for Speaker O'Neill. He said the one thing that the American people won't tolerate is obstructionism. A majority needs to be given a chance to work its will.
That's a pathological lie. The Dems passed a number of CR's and piecemeal funding during Bush's last year in office. All he's really saying is he wants all or nothing. The GOP was willing to fund the high-profile spending the Dems were using to manipulate public opinion during the shutdown. The GOP was willing to fund just about everything but ObamaCare. As for a "majority", he is obviously not discussing the House majority. This is the fiction that Obama was reelected because of his ObamaCare policy, never mind those pesky polls showing repeatedly otherwise. "Obstructionism" doesn't seem to mean the Dems taking negotiations off the table.
SAVANNAH GUTHRIE:
As you well know, we are facing an even more potentially disastrous deadline. October 17th for the nation's borrowing limit to the debt ceiling to be raised. Lest the country potentially default on its obligation. But let me put this to you very, very clearly. Is October 17th also the day that the country defaults?
JACK LEW:
Let me be clear. We actually hit the debt limit in May. From May until this week, we've been using what are called "extraordinary measures" to create a bit of additional head room. On Tuesday, I informed Congress that I had used the final extraordinary measures. There are no more. So we're now limited to the borrowing capacity that we have today. On October 17th, we will exhaust our borrowing capacity. And at that point, I have nothing else in the drawer.
First of all, the whole discussion of defaults is disingenuous. The country pulls in roughly $2.7T in tax revenue and the interest payments amount is a fraction of that. Retiring debt can be rolled over into new debt. Obama could only choose to make default happen if he paid off other than lenders. Lew and Obama are basically holding bondholders hostage.
JACK LEW:
So the reality is that if we run out of cash to pay our bills, there is no option that permits us to pay all of our bills on time. Which means that a failure of Congress to act would for the first time put us in a place where we're defaulting on our obligations as a government because of Congress's failure to act.
He's doing a subtle bait-and-switch here. By "obligations" he's not talking about American debt and creditors, whom should receive first priority. He's really talking about the funding of any and all government programs. I'm often behind shoppers say at a Sam's Club. If they find they don't have enough money to buy all the items in their cart, they have the cashier back out item purchases to the feasible purchase amount. Similarly we collect tax revenue. If we don't collect enough, we have to borrow funds, or cut the items in the nation's shopping cart. Saying we need all the items in the shopping cart are obligations is absurd. I can point to watch groups arguing there's up to a trillion to be cut from the budget.
JACK LEW:
We've never crossed this line, so everyone is speculating on what happens if the unthinkable happens. Let me just read to you from what President Reagan said when he faced this. And I quote, "The full consequences of a default, or even the serious prospect of default by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar and exchange markets." Why would anyone take that risk?...It would be very bad. And I think that for people to say, "We want to know the last minute to act. We want to know the last dollar." Even getting close to the line is dangerous. We saw in 2011 there was no default in 2011. It hurt the economy to get close to the line. We saw it in the stock market, we saw it in confidence, we saw it in investment. If we cross the line, we're going to a place that we've never gone. It's very dangerous.
Pathetic, utter fear-mongering. Keynesians argue cutting government hurts the economy, but government is funded by present and future taxpayers. If there was a legitimate concern, why wasn't Obama willing to negotiate and given Boehner some spending concessions.
SAVANNAH GUTHRIE:
Well, you've painted these dire consequences. So to put these two concepts together for me, on the one hand, you say it's terrible for the economy to even threaten default. And on the other hand, the president is saying, "I won't negotiate. I won't have any conversation about this. I won't negotiate to stop that from happen." How do you square those two things?
JACK LEW:
Well, to be clear, the president has been and remains prepared to negotiate on fiscal policy. He has spent much of the last three years trying to find the sensible middle ground. He's made offer after offer, negotiation after negotiation.
Guthrie finally notices the elephant in the room. She's spot on. Lew is sidestepping the issue. Obama is not negotiating in good faith. "Sensible middle ground" is not negotiation but Obama's own negotiating position, perhaps with token, weakened, toothless "concessions". Obama has not been serious in negotiations. He waited until December 2010 and 2012 to discuss the Bush tax cuts. He is still upset about agreeing to modest sequestration cuts in 2011 and ranted against them earlier this year, issue apocalyptic warnings. The proof is in the pudding--few year-over-year budget cuts. This talking point is just so disingenuous, it's what led to my writing this rant.
SAVANNAH GUTHRIE:
But the administration has said, "We don't want to have any negotiation until the government has reopened and until the debt ceiling is raised."
JACK LEW:
Let's remember where we are. We're where we are because in 2011, 50 to 100 of the most extreme members of the House changed the rules of the game. They said, "We would rather default than have an honorable compromise." It's Congress's job to fund the government and it's Congress's job to make sure we can pay our bills. There's nothing here that we're asking for from Congress for them to do that. We are happy to negotiate on reasonable policies with entitlement reform and tax reform that closes loopholes. That's something that we would like to do.
Guthrie caught him in a lie: after all, if Obama did make reasonable accommodations before, why not now? The idea that Obama will make concessions only after he gets his ransom money for holding the bondholders hostage is totally absurd--look at the fact there were no follow-up discussions/agreements to sequestration cuts. Lew is specifically attacking alleged Tea Party "extremists" in Congress. No member of the Tea Party called for stiffing bondholders; Lew isn't even a good pathological liar; he now resorts to smearing the opposition and putting words into their mouths. Congress can and does cut items from the budget--what Lew is disingenuously calling "paying our bills". Obama/Lew decide on what they consider REASONABLE, which is their negotiating position. We have over $80T in unfunded entitlements, and right after Obama has raised taxes on higher-income taxpayers, "closing loopholes" is Obama-speak for more class warfare tax hikes.
SAVANNAH GUTHRIE:
But realistically, why would they give up their leverage? You're essentially saying, "Agree to everything we want you to agree to, and then we can talk about that." That's the leverage they have.
JACK LEW:
Savannah, do you think about what the consequences of crossing this line are, you know? What would it mean in this country if we're not able to pay millions of people in social security on time? What would it mean if we are not able to pay hospitals through Medicare and Medicaid on time? There would be liquidity crises in homes, in businesses, in important institutions. It's just not responsible. It's reckless and irresponsible to say, "We'll bring all that down if we don't get our way."
Guthrie is better than Gregory in terms of cutting through Administration BS. Lew goes back to painting the threats of what the Obama Administration will do if the House GOP doesn't capitulate to Dem blackmail. There is no discussion of even modest spending cuts to resolve the stalemate. Lew is the pot calling the kettle black.
JACK LEW:
Congress needs to do its job and then we need to negotiate. The president wants to negotiate.
Obama is the epitome of hypocrisy. Give us all the money we demand, and then we'll negotiate. This is extortion, not negotiation.
SAVANNAH GUTHRIE:
But will he not come to the table at all even at the risk of default?
JACK LEW:
I know the leaders of Congress, Republican and Democrats. I don't believe any of them want a default. They're going to need to look at how do they let a majority in Congress work their will.
Guthrie, this is Obama-speak for "Hello, no! Our way or the highway." He wants Boehner to put a "clean CR" without the majority support of his own caucus, on the floor--a hypocritical stance that Reid hasn't agreed to do on any issue.
