Debt ceiling debate drags on and risks global economic chaos

Perhaps not surprisingly given the cast of bizarre politicians affiliated to the tea party wing of the Republican party who now sit in Congress a deal to raise the debt ceiling has still not been struck despite the fact that midnight approaches. A major part of the problem is the strategy of the radical right wing Republicans to try to blackmail the President and the Democrats to do lasting damage to the many positive programs that help the poor and the elderly and the moderate income access health care, retirement,  education and employment in the United States. They are determined and dogmatically misunderstand the role of government in a modern democracy as a protector of both prosperity and community in co-operation with the private enterprise system. But unfortunately President Obama apparently has also made some errors in how he has approached these negotiations. By unwisely and prematurely promoting  deficit reduction rather than job creation as his top priority he may well have trapped his administration into offering excessive concessions in order to win a deal with legislators who are only interested in damaging his Presidency and defeating him in 2012.

The veteran distinguished journalist Elizabeth Drew has written an excellent article that explores these questions which was published in the New York Review of Books on July 19, 2011 with the catchy title What were they thinking?  Based in part apparently on off the record interviews with former Obama advisors she describes a presidential strategy driven by polling that focuses heavily on re-election  in 2012 and winning the votes of centrist independents who favor fiscally conservative policies.

Winning is important but the point of winning is to implement positive and progressive policy. This is a key moment in the recovery where a great deal of harm could result from excessive budget cutting and substituting a supply side strategy when the lack of aggregate demand and liquidity trap circumstances are clearly the problem. Robert Reich has suggested that a face saving strategy worked out by Senator Mitch McConnell that raises the ceiling but permits tea party Republicans to register their disapproval without this negating the legislation will ultimately be the solution. Others have rejected this option and are now arguing a further compromise package will be necessary.

Whatever the solution under no circumstances should members of Congress assume that refusing to raise the debt ceiling won’t have  significant negative consequences. The tragedy will be that they will be self-inflicted .


Cost of Credit Default Swaps on US Treasuries


About haroldchorneyeconomist

I am Professor of political economy at Concordia university in Montréal, Québec, Canada. I received my B.A.Hons (econ.&poli sci) from the University of Manitoba. I also completed my M.A. degree in economics there. Went on to spend two years at the London School of Economics as a Ph.D. student in economics and then completed my Ph.D. in political economy at the University of Toronto. Was named a John W.Dafoe fellow, a CMHC fellow and a Canada Council fellow. I also was named a Woodrow Wilson fellow in 1968 after completing my first class honours undergraduate degree. Worked as an economist in the area of education, labour economics and as the senior economist with the Manitoba Housing and Renewal Corporation for the Government of Manitoba from 1972 to 1978. I also have worked as an economic consultant for MDT socio-economic consultants and have been consulted on urban planning, health policy, linguistic duality and public sector finance questions by the governments of Manitoba, Saskatchewan,the cities of Regina and Saskatoon, Ontario and the Federal government of Canada. I have also been consulted by senior leaders of the British Labour party, MPs from the Progressive Conservative party, the Liberal party and the New Democrats on economic policy questions. Members of the Government of France under the Presidency of Francois Mitterand discussed my work on public sector deficits. I have also run for elected office at the municipal level. I first began to write about quantitative easing as a useful policy option during the early 1980s.
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