Decoding the debt deal: What it means for you [The conversation]
Though Tuesday’s debt deal managed to raise the debt ceiling, which was ultimately the intended goal, it left many feeling unsatisfied. “Federal debt is still ballooning, healthcare costs are still rising, and we're nowhere close to an agreement on raising tax revenue,” writes Doyle McManus in his Thursday column. The fiasco surrounding the deal, however, may have been a game-changer in many ways, prompting people to wonder about the ripple effect it will have on significant issues ranging from the national security and social welfare to the political process. Here’s what opinionators are saying:
What it means for Obama’s presidential campaign
At the end, of course, Obama was in the room. But much of the time, he looked more like a victim than a hero. When his talks with Boehner failed, the president described himself as a forlorn bride, “left at the altar.” Rep. Charles Rangel (D-N.Y.) said Obama had simply been mugged. As appeals for sympathy, both images had a certain charm, but they didn't do much for the president's stature. […]
Democrats have tried to console themselves by noting that the deadlock drove the popularity of Congress and its Republican leaders even lower than Obama’s. Gallup said Congress’ standing has hit an all-time low, with only 14% of the public approving of the legislators’ performance.
But that won’t do Obama much good next year. He’s not running against John Boehner; he’s likely to be running against a governor who never got near Capitol Hill.
What it means for House speaker John Boehner’s reputation
We now know that economic growth has been slowing all year, for a number of obvious reasons -- Japan's earthquake, high gas prices, European sovereign debt problems, a gradual deceleration in the Chinese economy. And then, as nervousness started to mount, we watched our own government manufacture an utterly unnecessary crisis that froze investors, employers, and consumers in their tracks at exactly the wrong time.
On Friday, we'll get to see the government's jobs reports for July. If it comes in low, Republicans will immediately claim that the bad numbers are a reflection of Obama's stewardship of the economy. But if you were an employer making hiring decisions in July, while watching House Republicans openly root for a government default, would you open up your company wallet? If Americans aren't feeling confident about the future, John Boehner is at least as much to blame as Barack Obama.
What it means about our political process
Gov. Jerry Brown called the recent debt-ceiling debate "a very dangerous and sorry spectacle" that reflects a decaying American political system, and said he would consider changes to the state term-limits law, or perhaps even a part-time Legislature, to try to make California more governable.
Brown, who first served as governor from 1975 to 1983, said the rancorous divisions between Democrats and Republicans in Sacramento and Washington have surprised him. "What is shocking to me coming back here after 27 years is the hyperpartisan quality of debate," he said in a telephone interview Tuesday. "There’s something atrophying in the political process. It’s getting extremely rigid and inflexible. […]That obsessive, partisan ideology is what’s making it impossible to govern."
What it means for the wealthy
Perhaps most important, this week's debt deal does nothing to change the fact that the George W. Bush tax cuts will expire at the end of 2012. Obama and congressional Democrats will be able to bargain for increased taxes on the wealthy, in a situation in which they have much less to lose.
What it means for the poor
President Obama's debt ceiling deal is widely considered a historic defeat for progressives, a successful attack on the New Deal and Great Society achievements of the past century. Congresswoman Donna Edwards (Democrat, Maryland), summed up the disappointment, in which half the Democrats in the House voted against their president, tweeting:
"Nada from million/billionaires; corp tax loopholes aplenty; only sacrifice from the poor/middle class? Shared sacrifice, balance? Really?"
What it means for national security
The first and most obvious loser: National security.
The economist Herb Stein used to advocate a simple model of federal budgeting:
a) Decide how much it costs to defend the country.
b) Pay for it.
c) Then see what else you can afford.
Adam Smith phrased the same idea more elegantly, by saying that "defense is superior to opulence." The point is that the defense of the nation is not just another line-item. It's the first obligation of government, more important than any other form of spending, and way more important than minimizing taxes.
Yet this budget deal treats defense as just another special interest. Worst is the enforcement mechanism for the deal: If spending targets are not met, the deal subjects Medicare and Medicaid to automatic cuts (presumably to punish Democrats) and subjects defense to cuts (presumably to punish Republicans). The enforcement mechanism could have included new taxes, but defense was substituted to clinch the deal. That way Republicans get to tell their Tea Party base that the deal contains no tax increases. But the substitution also reveals that for today's Republican Party, the defense of the nation is at best a secondary priority.
What it means for unemployment
The nation's unemployed didn't get anything out of the debt deal, except for a weakened bargaining position and a significant reduction in leverage for any lawmakers who want to help end the unemployment crisis.
That's what passes for good news! Tim Geithner, in the pages of the Washington Post Wednesday, promises the umpteenth "pivot to jobs." But what is he offering? Little more than a promise that the jagged little pill the American people will now have to swallow may have medicinal side effects.
As for the White House, Robert Reich runs down the weak sauce: Obama's got no room to extend tax cuts on the middle class, no ability to create a "WPA or Civilian Conservation Corps" type of jobs program, no way of unburdening cash-strapped state governments, and an infrastructure bank that's a non-starter unless it's a fully private concern -- with working class laborers building toll roads and "user-fee" services that benefit the affluent.
What it means for the local economy
At this point -- and it's still very early -- we're probably looking at only the miserable. The package is heavily back-loaded, which means that the cuts won't be all that severe in 2012 -- something that a lot of economists had been concerned about. (The fear has been that cutting back at a time when the economy is still struggling, and when state and local governments have been dealing with their own debt problems, could potentially lead to another recession.) So it's important that these cuts won't happen tomorrow. Another positive is that two of Southern California's most successful industries these days, entertainment and technology, probably won't be impacted all that much. The one industry that's likely to take some sort of hit is defense - there's a trigger mechanism in the legislation that would go into effect if lawmakers can't agree on additional cuts, and defense would bear the brunt of those reductions. […]
Bottom line is that lots of federal dollars go into the local economy. No matter how you feel about the importance of reducing the deficit, government cutbacks clearly impact economic growth (that's one reason why the nation's gross domestic product was so disappointing in the second quarter). And it's also worth mentioning that even before the federal debt legislation, there's been a big reduction in government employment -- around 60,000 jobs in California over the last 12 months, about a third of that total coming from L.A. County alone. That covers federal, state and local jobs.
What the deal means for you
Here are some things you should do to make sure you’re prepared for what’s to come:
- This deal will almost certainly mean that the government won’t be available to throw more money into a future economic stimulus package, so you’ll need to create your own security blanket. Make sure you have a robust emergency fund with at least six to nine months of living expenses. This will protect you in case (heaven forbid) you lose your job or encounter some other dire circumstance.
- The spending cuts will mean reduced funding for Social Security, so you can count less than ever on the government’s help for retirement. To make sure that you won’t have to work through the entirety of your golden years, start saving more aggressively for retirement through a 401(k) or IRA. ...
- You can also expect Medicare and Medicaid funding to be cut substantially, so safeguard yourself now by making sure you have the best health insurance for your lifestyle and circumstances.
Photo: Senate Minority Leader Mitch McConnell of Kentucky pauses during a news conference on Capitol Hill in Washington, Aug. 2, 2011, after the Senate voted to pass debt legislation. Credit: Jacquelyn Martin / AP Photo