Sunday, April 17, 2011

The Next Fronts in the Budgetary War, America's Energy Future

With Fiscal 2011 Behind Us, The Battle Turns to the Debt Ceiling and the Blueprint
I give John Boehner a lot of credit as a politician. When the GOP swept into control of the House last November, Republicans were quick to note that they still only controlled "one-half of one-third of government", that is, that they controlled half of the legislative branch but not any of the executive branch (certainly true) or the judiciary (not really true, but makes for a good one-liner.) But with control of the House came a very important power, one that I noted that we all should hold the GOP accountable for - control of the purse strings. And use that control the Republicans have done.

Think back to prior to November. The debates that took place in the last congress were about stimulus, health care, Don't Ask, Don't Tell, nuclear arms treaties. The President wanted to talk about comprehensive immigration reform and cap and trade. The Republicans have focused the political debate in this country on one thing and one thing only: government spending. Boehner did a masterful job getting most of what he wanted in the fiscal 2011 budget. This time-consuming debate was just an initial salvo in the debate to come.

First up, the debt ceiling. By sometime in late May, the federal government will have reached the maximum amount that it is allowed to borrow by law and will need permission from congress to continue issuing bonds. As there is no viable path to budgetary balance this year, the impact of not getting that permission would be nothing short of catastrophic. Essentially, large swaths of the government would shut down and the US would fall into default on treasuries, which would destroy the value of the full faith and credit of the government and cause massive spikes in interest rates. I don't think most of the Republicans want to see this happen, but they are certainly looking to use the debt ceiling as a bargaining chip. Boehner and company will attempt to use the debt ceiling legislation to extract even more significant cuts in spending. This is a fairly dangerous game of chicken, but from what I've seen, in games of chicken, the Democrats seem to be blinking first most of the time the past few years.

Then, there is the Ryan plan, the GOP blueprint for the next 10 years of government spending. All but 4 Republicans in the House supported the plan (no Democrats did), which called for abolishing Medicare and Medicaid as we know it, replacing Medicare with subsidized private plans and Medicaid with block grants to the states. It also called for extension of the Bush/Obama tax cuts at all income levels and major reductions in domestic discretionary spending (it left Social Security untouched, although some Republicans have been calling for the retirement age to be raised to 70 over time.)

If you would have told me a year ago that 98% of House Republicans would have supported a plan to dismantle Medicare, I wouldn't have believed you. But it just shows how far Boehner has been able to shift the debate. The Ryan plan is clearly DOA in the Democratically-controlled Senate and President Obama would veto it regardless, but it stakes out a striking opening position in the debate over balancing the federal budget.

Republicans seem highly likely to control both Houses in 2013 (see my previous post on the Senate map and how awful it is for the Dems in 2012), which means that the Presidential election will be very high stakes. If a Republican candidate wins, we could very well see something like the Ryan plan enacted.

President Obama, for his part, has called for more modest reductions in domestic discretionary spending, significant reductions in defense expenditures and allowing the Bush/Obama tax cuts to lapse for those making over $250K. It's a start, but doesn't go nearly far enough to fix the budget. Republicans are sure to strongly oppose the tax changes and a least a portion of the defense reductions.

Let the debate begin.

Why $4 Gas is a Good Thing
In the breakthrough economics book, Freakonomics, economist Steven Levitt makes one point abundantly clear over and over again: people respond to incentives. From drug dealers, to parents with kids in day care to sumo wrestlers, the book chronicles how incentives drive behavior large and small. The same is true with energy policy.

When gas is sub-$2/gallon, whatever we may say about carbon emissions, national security, etc., not a lot will change with the behavior of individuals that drives our oil consumption. When it reaches $4/gallon, magical things happen. People buy hybrid and electric cars. Corporations start investing in alternative energy. We start to make real progress against our dependence on foreign fuels and evolve our economy.

$4/gas hurts, but let's hope it is here to stay. Our green energy economy depends on it.

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