Imagine what would have happened if Ron Paul libertarians and Progressive Democrat factions in Congress decided to treat the results of the 2006 mid-term elections as a mandate to block any further increase in the debt-ceiling until George Bush pulled out of Iraq or raised taxes to finance the war. Of course, the moderates would have shaken their heads in disdain. But, more important, American big business would have gone crazy.
CEO’s would have flown to Washington, probably with big labor along for emphasis, to talk sense to legislators in both parties. They would have summoned their Washington lobbyist, media spinners, and think-tanks and read them the riot act: “American capitalism, and its global playground, will not tolerate playing politics with the credit of the United States. Superior credit facilitated the rise and dominance of the United States. When we think the credit worthiness of the US is in jeopardy, we’ll call you. In the meantime, play with the hot buttons you play with now.”
What happened this summer when first-term Republicans—and their leaders in Congress—declared over and over that they wouldn’t raise the debt-ceiling without securing $trillions of dollars in spending cuts and a balanced budget amendment to the constitution?
Business leaders crossed their fingers and did nothing.
Instead of worrying about creating a dangerous and very costly precedent, they pretended that this new form of blackmail could provide a timely national learning opportunity. The American Chamber of Commerce, right into July, advised everyone to relax: the crisis is just “political theatrics.”
The truth is they panicked last week.
After months of allowing the Tea Party and primary-driven sound-bites to undermine the executive, monetary authorities, the dollar, the stock market and potentially, the credit rating of the US government, all of a sudden they insisted that the moderates take command of the situation and end the lunacy.
Clive Crook nicely identified the damage this economic blackmail may inflict over long-term:
“Preventing default is good, but lifting a threat that should not have been made in the first place is little to boast about. It is worth stressing that the history of the past few months cannot be unlearned. Will this farce recur every time the debt ceiling needs raising? That question is a new risk factor in its own right.”
Now that everyone feels safe again, the airways are bristling with shots against Obama’s negotiating tactics and “diminished” presidency.
Liberals argue that he was free to bluff Republicans and make demands as well. This is pie-in-the-sky delusional. The President is trustee of America’s economic recovery and can’t change the subject after a game of economic chicken turns into a tragedy.
The isolation of the President and the uneven distribution of lethal weapons around the debt-ceiling negotiating table had as much to do with the negligence of America’s private sector than the spines of moderates in Washington.
America’s capitalist consensus has survived populist revolts before. Previously, however, the principal beneficiaries of mainstream economic policy bothered to ally themselves with mainstream leaders and stand up to demagogues on both the left and the right.