A comic book hero explains to a concerned citizen what is at stake in the debt-ceiling negotiations.
The phone rings at the Debt Crisis Hotline. Captain America answers the phone.
Captain America: This is Captain America.
Caller: From the movie? How can you help me? You’re not even real.
C.A.: I’m as real as the $14.3 trillion debt we have now and the trillions more the United States will accumulate no matter what happens in the next couple of weeks.
Caller: Wait. Even if there’s a deal, we’re going to amass more federal debt?
C.A.: Of course. Even the Republicans’ tough-love budget adds trillions to the debt over the next 10 years. Plus, raising the debt ceiling doesn’t change yearly deficits, which are running near $1.5 trillion and will increase if the economy takes another hit.
Caller: Is there going to be a deal?
C.A.: To raise the debt ceiling? I don’t see one.
Caller: Should I be worried about my investments?
C.A.: If they are in stocks, probably.
C.A.: Because the market doesn’t know how to price a government default. It doesn’t know how to price even the potential of default. Market psychology can be volatile.
Caller: But don’t they know we’re getting a little panicky out here on Main Street?
C.A.: Vaguely. But both sides are dug in.
Caller: You mean they don’t care?
C.A.: I don’t mean that at all. They just care about different things.
Caller: What do you mean?
C.A.: For Republicans, especially the new, activist House conservatives, this is the moment. For them, compromise means throwing up their hands at a problem that’s accumulated for years, is getting worse, and can’t be ignored. They see this as an existential question. Total debt nearly equals the nation’s gross domestic product. For them, failure to demand a big deal on spending cuts—including entitlements—is the worst choice of all, worse than a big market drop.
Caller: What about Democrats?
C.A.: They care about protecting bedrock programs like Medicare and Social Security, although they’ll take some cuts in those. They also can’t fathom accepting big spending cuts without higher taxes on some of the wealthy—to do so would be to violate their heritage as a party, not to mention depress their base just at the time they’re trying to fire them up for President Obama’s reelection campaign.
Caller: So this is about politics?
C.A.: Don’t be naïve. Of course it is. And it has to be.
C.A.: Because that’s how power is apportioned. Look at Republicans. They don’t want to raise taxes because they believe it will undercut the fragile economy. But they also know their base will revolt if they raise taxes. Republicans believe if they raise taxes now, tea party primary challenges, some of which already exist, will sprout like weeds.>
Caller: But Democrats aren’t asking for higher tax rates, just elimination of tax subsidies.
C.A.: True, and Republicans, privately, are willing to accept some of those. But they won’t accept enough tax increases to reach the threshold of $400 billion in new revenue set by Obama.
Caller: They want more entitlement cuts on things like Medicare. Aren’t Democrats open to those?
C.A.: Yes, but only at the margins, like Republicans are on tax increases. If either party budges, they lose political advantage. Republicans want the tax issue for 2012 and Democrats want the Medicare issue. Neither will vote for a plan that makes that perceived advantage vanish.
Caller: What about a short-term deal?
C.A.: It’s usually the way in Congress. Look at the Medicare “Doc Fix,” the Alternative Minimum Tax, current highway funding, and continuing resolutions. Short-term answers almost always win. And psychologists will tell you past behavior is the best predictor of future behavior. But I don’t think so this time.
C.A.: Because Obama and House Republicans oppose it—and until that changes, it won’t happen.
C.A.: They could. But they aren’t right now. Obama wants a session on Thursday, but Republicans are already dismissing it as a phony photo-op.
Caller: All you’ve told me is you’re powerless, and those with power won’t move because philosophy and expediency tell them not to. This is a bigger crisis than I imagined when I started this call. Listening to you, I’m just supposed to watch this train wreck play out and do nothing but call my financial adviser. What does she know that you don’t?
C.A.: Probably not much.
Caller: I don’t know whether to be depressed or furious or both. I mean, this is my future at stake!
C.A.: Here’s a suggestion: Whatever you feel, turn it into a point of view and act on it.
Caller: What good will that do?
C.A.: Did you celebrate Independence Day?
Caller: Of course I did.
C.A.: Do you think anyone who founded this country asked, “What good it would do?”
This article appears in the July 6, 2011, edition of NJ Daily.