No Ransom!

When Major Garrett asked the president

"What Chuck and I and I think many people are curious about is this new adamant desire on your part not to negotiate when that seems to conflict with the entire history in the modern era of American presidents in the debt ceiling and your own history on the debt ceiling,"

I wish the president had been more forceful in his answer, something along the lines of: "Look, the Republicans are attempting to hold the national and world economy hostage to exact a ransom. When you talk about 'negotiate', you mean accepting that a ransom will be paid:  'negotiations' just mean dickering over the amount of the ransom. It's my belief that the United States should not pay ransom to hostage takers, but should instead demand the immediate release of the hostage - in this case, by increasing the debt ceiling.  You should not make the mistake of seeing this as a Republicans vs. Democrats issue. It's a Republicans vs the United States issue."

Pithily Stated

Duncan Black puts in a nutshell our frustration with the deficit reduction policies being pushed by the Obama administration, and even more destructively by the GOP:

The additional maddening thing is that if you fix the jobs problem you largely fix the deficit problem. The reverse is not true. If you "fix" the deficit you kill the jobs.

( And as one of the commenters on the post noted:
"And you still don't fix the deficit."  )

Realism about Afghanistan

Emile Simpson has a column laying out the strategic narrative the administration should be employing about how things are going to go in Afghanistan.  One of the ways Simpson says the administration needs to frame the narrative:

. We should not invest any coalition credibility in holding the peripheral areas: Over the next three years, the Taliban flag may go up in some towns and villages. In our current narrative, that will be seen as a major victory for them. In reality, to control dusty villages on the periphery, and even remote district centres, means little. We need to adjust our narrative so people expect that, and when it happens, people believe us when, legitimately, we point out that this is insignificant. By so adjusting the narrative, we take pressure off the Afghans to hold the peripheral areas, which they do not want to, only being there because they perceive it as a condition for us giving them support. 

 The main point of his column is that this is not a binary conflict where one side loses, the other wins, and both the US and Afghan publics should understand that there will be no clear victory, and nor could there be.

But is the Obama administration explaining this forcefully enough?
I don't think so.

Another Good Use of Time

An excellent use of a spare 48 minutes would be listening to this interview with Paul Krugman.

(Even if you already spent an hour as I recommended earlier.)

Avoiding the Debt Ceiling Crisis

While the platinum coin idea is ingenious, it does seem a ridiculous solution to the Republicans' taking the economy hostage, and would probably not go over well with the public. ( Ezra Klein provides a sturdy argument against the coin solution.)

Steve Waldman has what sounds like a more acceptable solution:

The Treasury Secretary would announce that he is obliged by law to make certain payments, but that the debt ceiling prevents him from borrowing to meet those obligations. Although current institutional practice makes the Federal Reserve the nation’s primary issuer of currency, Congress in its foresight gave this power to the US Treasury as well. Following a review of the matter, the Secretary would tell us, Treasury lawyers have determined that once the capacity to make expenditures by conventional means has been exhausted, issuing currency will be the only way Treasury can reconcile its legal obligation simultaneously to make payments and respect the debt ceiling. Therefore, Treasury will reluctantly issue currency in large denominations (as it has in the past) in order to pay its bills. In practice, that would mean million-, not trillion-, dollar coins, which would be produced on an “as-needed” basis to meet the government’s expenses until borrowing authority has been restored.

A reasonable workarounnd.  But the priority for President Obama right now should be to frame the issue so the public understands why extraordinary measures are necessary.

Start Framing Now!

The Republicans have made it clear that they will demand concessions from the Democrats before raising the debt ceiling.  When the time comes, they will present it as a a partisan issue - the Democrats want to raise the debt limit, the Republicans want to cut spending.  i.e. the Republicans want something, the Democrats want something, so let's compromise.

If it's it put in those terms, Democrats have to lose.  The public favors compromise, and if the Democrats hang tough and refuse to "compromise", then they will get the blame if the failure to reach agreement results in default and the resulting economic fallout.

The Democrats need to frame the issue correctly now.  Raising the debt limit is not a partisan difference in priorities: the Congress has written a check for the budgeted revenues and spending, and raising the debt limit is just making sure the funds are in the bank to honor that check.  For the Republicans to threaten to refuse to honor the country's commitments, and threaten the whole economy, is hostage taking.  And any spending reductions they demand are a ransom to "free" the hostage (i.e. to  preserve the creditworthiness of the USA and our present [fragile] economy).

It's not a question of partisan differences that can be resolved by "compromise".  You don't compromise with hostage takers: you pay the ransom or you don't. (If you do negotiate, it's on the size of the ransom.)

So that's how the issue should be framed starting today: do the American people want to pay ransom to hostage takers, or don't they?

Update 1/4/13  Advice from a hostage negotiator.

Update 1/6/13  And in case you think the hostage/ransom metaphor is overly anti-Republican - note that the Republicans have used it themselves :

“I think some of our members may have thought the default issue was a hostage you might take a chance at shooting,” (Senator Mitchell)  said. “Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming."

Making an Analogy

You'll often hear people say something like "Households have to balance their budgets - the federal government should too."  And the reply, "The government isn't like a household - you can't equate them."

I think both views are wrong:  households do not in fact have to balance their budgets every single month, and one can make an analogy between the federal budget and a household budget - though I'll imagine a household that lives in a stylized and simplified world for the analogy to be easily followed.

Suppose you work for the only employer there is.  (The federal government has only one economy, after all.)  Continuing our supposition for this hypothetical household, you have good credit, though you rashly allowed your relatives Ronald and George to run up your credit card debt irresponsibly.

Now you lose your job and there is no other. (Analogous to recession/depression hitting the national economy.  Again, for ease of simplification, I'm positing no income at this point.)  Here's what the future looks like:  after a wait of some time, it's pretty certain you'll get your job back when the employer's business has improved - perhaps in 4-5 years. (Analogous to the economy recovering - eventually.)   A couple more wrinkles:  if you invest in some training courses during this period of being unemployed, you'll improve your chances of being hired back at a higher salary, and if you invest in sprucing yourself up a bit - e.g. a new wardrobe to replace your worn-looking one - you'll improve your chances of being hired back sooner - perhaps in 1½ -2 years.   (Analogies to national investments in education and infrastructure.)  And oh yes: interest rates are really low, so you can borrow money essentially for free.

So you have three choices:

Option 1. "Balance your budget" by giving up your home and eating out of dumpsters while your increasingly shabby appearance makes the chance of your being rehired more and more remote;

Option 2. Accept that you're going to have to go into debt to maintain your household, adding to the debt already run up by your irresponsible relatives, but knowing that in a few years, before your credit has run out, you'll be rehired, and can then start paying off the accumulated debt;

or

Option 3. Take a deep breath, and invest in the education and sprucing up - and maybe some other useful things you were thinking of buying on credit in the future, but figure now is the time while interest rates are so low.  Yes, it means taking a deep credit plunge, but because you get your job back so much sooner, you in fact lay out no more (and probably even less) than you would have by just coasting on credit for a longer time without making the investments (option 2). You're also ahead on those future planned purchases you make now, as interest rates are going to go up once the only company in town is back to hiring everybody. And once you're hired back at that higher salary, you can pay off the debt more quickly than you would if you followed option 2.

Which option would you choose?

(Yes, yes, yes, it's very simplified, and not a true representation of an actual household, but I believe it's a perfectly valid analogy for the situation we found ourselves in back in late 2008.  Since then we've been coasting mostly on option 2, a little bit of option 3 back in 2009, and have been harangued by Ronald's and George's closer relatives to "act responsibly" by adopting option 1.)