The Smart Money: What's behind the latest threat of federal shutdown?

Posted Wednesday, August 28, 2013 in Analysis

The Smart Money: What's behind the latest threat of federal shutdown?

by Gina Hamilton

On Friday, President Barack Obama said that the current Republican threat to shut down the federal government unless Obama agrees to put off the Affordable Care Act (ACA) doesn't constitute an economic plan.

The remark came amid speculation that the tea party members of the GOP caucus would insist that the health care plan be defunded before they would vote to increase the debt limit or add to government funding when it runs out on September 30.  This is a last ditch manuever by the tea party to get what they want, since after 40 votes to defund the ACA, the law still stands.  The tea party doesn't have the votes in the Senate, nor would the president sign any bill that would defund his signature program, and no doubt the tea partiers know this.  So the plan switches to holding the whole country hostage to get what they want, which is the elimination of the health insurance plan for everyone.

"Most recently, there's been threats that we shut down the government unless we agree to roll back the health care reform that's about to provide millions of Americans with health care coverage for the first time,” the president said Friday at a town hall forum at the State  University of New York at Birmingham. “And that's not an economic plan. That's not going to grow the economy or strengthen the middle class or provide ladders of opportunity into the middle class. What we need to do is focus on the pocketbook, bread-and-butter issues that affect all of you.”

The ramifications of allowing the government to be defunded just to kill Obamacare are breathtaking, and it's truly astounding that any rational person would even consider it as an option.

First, a little reality check on the issue of debt in the U.S.  No one likes debt, but the benefits of a monetary policy, such as we have in the U.S., are that we can, occasionally, use debt to get us over some major bumps in the road.  We have the power to devalue our own currency slightly to put more money into the system, and use the power of the national debt to back that currency.

Then, when times improve, we can decrease our debt and go on from there.  That's exactly what happened during the Depression, during World War II, and during the Reagan administration.  In all of those periods, we increased our debt limits far more than Obama has done, and devalued our currency slightly, then when times got better, we decreased our debt load and our currency bounced back.

The only people who ought to have a problem with this are people who speculate short-term in oil or gold or other commodities.  Because those commodities are sold in U.S. dollars, a decrease in the dollar's worth will cause the price of those items to go up, which can put a damper on a speculator's portfolio. But for everyone else, borrowing money at nearly zero percent interest is a no-brainer, and a reasonable and intelligent approach.  Imagine that you are a business owner, and want to expand your business.  You might have a million dollars in the bank, drawing interest, which you could use, or you have the opportunity to borrow a million, keep your reserve cash, and pay less than one percent in interest, about what you're earning with the money in the bank. What's the best business decision?  There's no question that it's to borrow rather than to raid the savings account, and any financial planner in the country would tell you so.  So why is it different when it's a nation borrowing rather than an individual?

Really, it's not. The biggest threat would be an inflationary cycle, which we haven't seen since the recession began in 2008. 

So what, you ask, is really behind the tea party's aversion to increasing debt sustainably while stimulating the economy so that debt can be reduced?

There are really two issues.  One is understandable, and the other is simply mean spirited.

First, the tea party is afraid of increased taxes.  Their very public position has always been to avoid additional taxation, hence the whole tea party motif, which was, at least in school history books, a fight against taxation.  (It wasn't, exactly - the original tea partiers wanted the right to tax themselves for their own purposes, not send their tax pence and pounds to Mother England.)  Tea Partiers believe they're already paying far too much in taxes, and anything that suggests they might have to pay more in the future, whether that's increased debt or expensive new health care programs, they oppose. 

However, for all their rhetoric, tea partiers are NOT opposed to all government spending, much of which is far more onerous from a cost perspective than the ACA or welfare or Head Start or other things they have specifically gone on record opposing.  Military spending, Veterans spending, Immigration services, Social Security, and Medicare are all programs that they favor, even if they don't know that the federal government is responsible for them.  (A woman at an early tea party rally carried a sign that said, "No Socialized Medicine, and keep your hands off my Medicare"). 

Some of this is that those programs are more likely to benefit people in their demographics.  From a demographic position, tea partiers are more likely to be far older, whiter, more male, and more fundamental in religious beliefs, than the population in general.  They're also a tiny slice of the population, at just 9 percent.  According to a recent poll, 40 percent of tea party members are 55 or older, compared to 32 percent of the general population.  Sixty-one percent are male, compared to 48.5 percent of the population, 79 percent are white, compared to 63 percent of the population, and 44 percent describe themselves as 'born-again Christians' compared to 22 percent of the population.  So they were more likely to be a veteran or been a member of the military, and are more likely to be on Medicare and collecting Social Security. 

Religion also plays a role.  Evangelicals, in general, oppose welfare, food stamps, and other social welfare programs.  With a large number of tea partiers identifying as evangelical, their political views tend to merge with the views of their church. 

So in the ACA we have a nexxus of what the tea partiers hate most -- a social welfare program that benefits everyone regardless of ability to pay, that isn't tilted toward seniors or veterans, and which will require some outlay of funds which they view as a tax.  It's not surprising that the tea partiers aren't happy with it.  However, given the tiny number ... 9 percent ... who identify as tea partiers, it is surprising that Speaker John Boehner is giving them the time of day at all.

Boehner, has, indeed, said that he will make sure the government doesn't shut down, recognizing, finally, that a shutdown would be the final straw on a very weary camel's back, and such a manuever would spell doom for any hopes for the GOP in 2014.  That may not be enough to save him, or his speakership.

Next week: The economics ... and the politics ... of a government shut down

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