In this discussion on Larry Kudlow’s show, I reiterate the central point from my National Review article and explain that the government shutdown in 1995 led to real fiscal restraint. If that was a loss for the GOP, I hope they lose again this year.
But will this happen? If Republicans don’t surrender, a shutdown is inevitable. The Democrats clearly have adopted a rope-a-dope strategy, hoping GOPers will preemptively compromise. Here’s an excerpt from a story in the Washington Times.
A top Senate Democrat said Sunday that the $6 billion in additional spending cuts that his party offered is the limit Democrats can accept — drawing a line well short of Republicans’ goal with less than two weeks to go before a government shutdown if the two sides can’t agree. Sen. Richard J. Durbin of Illinois, the second-ranking Democrat in the chamber, said the $6 billion proposal, released Friday, has “pushed this to the limit” on domestic spending. …Meanwhile, the Senate’s top Republican said his talks with President Obama and Vice President Joseph R. Biden Jr. show that the White House is not serious about tackling longer-term spending challenges, making it difficult for Congress to work with the president. …“I’ve had plenty of conversations with them. What I don’t see now is any willingness to do anything that’s difficult,” Senate Minority Leader Mitch McConnell, Kentucky Republican, said on CBS‘ “Face the Nation” program. “So far, I don’t see the level of seriousness that we need.”
There’s no reason why Republicans should unilaterally compromise, but I’m worried. One major problem for the GOP is a misguided focus on red ink. Too many people, including Senators, Representatives, pundits, and policy wonks, keep talking about deficits and debt. Government borrowing is not desirable, but red ink is merely a symptom of excessive spending.
This is why all the focus should be about controlling the size and scope of Washington. That’s not only smart economics, it’s also astute politics. If the short-term question is how to save $61 billion from FY2011 spending levels and the long-term question is how to cap federal government spending at 20 percent of GDP, higher taxes obviously are not relevant.
But if Republicans keep talking about deficits and debt, that automatically puts tax increases on the table. And the primary long-run goal of the Democrats is to seduce GOPers into going along with a tax increase.
The next thing to watch for is what happens, presumably later today, when the Senate votes on the House plan and the Democrat’s proposal. The Associated Press is probably correct that these are key test votes.
The Senate appears likely to reject both a slashing GOP budget bill and a less ambitious Democratic alternative. …Neither measure can muster the 60 votes required under Senate procedures to advance; not a single Democrat is likely to vote for the GOP measure, and some may shy away from the Democratic bill as well. That could put pressure on House Speaker John Boehner, R-Ohio, as well as other congressional leaders of both parties to find a compromise. …By the same standard, the vote on the Senate Democratic alternative — it would cut about $5 billion from domestic agencies compared with about $60 billion under the House GOP plan — is unlikely to get unanimous support from Democrats, especially moderates up for re-election in 2012.
What Republicans need to understand is that they hold the trump card. Taxpayers will save much more than $61 billion if Democratic obstinacy results in a government shutdown.
What a frustrating discussion, Dan.
1) We must admit…that if Ron Paul style libertarians – like me – got their way, this “economy” would collapse. We need this to happen, but it won’t be painless, and I don’t believe the American people are ready for it. Despite the tea party rhetoric, they trust central economic planners, and they’re going to get a lot more of it.
We have a debt and inflation-dependent, consumption-based economy. Sadly, if the govt stops voraciously spending and borrowing…and if the FED stops inflating, this charade of an economy collapses immediately. And of course Keynesians will be right there to blame a ‘lack of spending’ as the culprit.
It is noteworthy that we’ve had two months of new QE2 money park itself in reserves and just look at the result. This economy is totally dependent on govt and FED stimulation.
This explains why veritably no one in the GOP (mostly Keynesians) wants to cut spending appreciably, despite this incredibly fake debate about “deep” cuts in spending. $100 billion…maybe! Give me a break. Our deficit is $1,500 billion. $100 billion would be a 6.6% cut IN THE DEFICIT ONLY, to say nothing of the debt itself. This is a false debate.
2) The Clinton years WERE characterized by a relatively slowly growing government (better than a rapidly growing govt). I agree…that helped the private economy.
But then Reich said the prosperity was due to Greenspan’s “low rates”, which is money printing/currency debasement. You should have been all over that! Why weren’t you?! The FED printing money – blowing a genuine tech boom into a tech bubble – is hardly something to brag about or want to reproduce. I suspect maybe you do not share this ‘austrian’ view of what happened to blow up that tech bubble (and all bubbles)?
I strongly disagree with Mr O’ Donnell. “Tight” money in 2008 caused the crisis. There was “tight” money before the Great Depression. Where the austrians see “loose” money there is in fact tighter money than in previous or posterior periods.
Since republicans took over the congress on november 4th unemployment has been going sharply down. Corporate earnings are at all time records. Let see how government spending fares now. For me the big question is how the deflating real estate bubble will harm the economy, and it seems that house prices are not falling anymore.
The japanese and the swiss real estate bubbles in the 1990s went down slowly. Perhaps growth was damaged by the deflating bubble or perhaps increased government spending did most of the damage. There were several crisis: The housing bubble plus a financial violent crisis caused by “tight” money in 2008. Search “Financial Crisis and the International Monetary System” by Robert Mundell
Superb post by Mr. Mitchell! Just a correction: Now money is TOO easy. TIGHT money damages corporate profits, investment, growth and brings recessions. It seems that for some austrians growth, investment, corporate profits, etc, must always be destroyed by tight money. The Great Depression that they predicted, over and over, in 2000, never happened.
We got into real trouble in 2007-2008 when there was tight money in 2007 and then again in 2008. Current low interest rates where the FED never allows interest rates to rise to offset the loss of value of money may cause bubbles. But housing bubbles started under tight and under loose money.
If there is one thing I could impress upon Republicans, it would be that today is NOT 1995! In 1995 we had a very strong economy, and people were not as informed or worried about the dangers of big government and big government spending as they are now.
There is much more support for widespread cuts in spending these days. The idea that government must live within its means is very popular. Elimination of useless departments, and starting means testing and life-span adjustments on Social Security are not the ‘third rail’ they used to be.
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In comparison to the trillion dollar budget, the monetary $6 billion this talk is about seems harmless. Let us not forget that we are just recovering from a hardship in our economy and that the uprise in our economy is very delicate, not to mention the added aggravation to additional global economic issues in Japan, and the plethora of international global issues! If the shutdown is a few days in duration, the impact may be minimal. If a shutdown last for weeks, then we as the US are adding fuel to the already burning flames and this is not 1995!