I was too busy studying the Chinese Great Proletarian Cultural Revolution over the course of the partial shutdown of the U.S. federal government to contribute any meaningful commentary on its causes, consequences, or possible resolutions. On the other hand, the current political crisis in Washington is far from over, so I will have plenty of time to contribute some pertinent reflections on our dysfunctional federal system. To me, it seems that the evolving structure of the U.S. Constitution and American federalism will make the present deadlock endemic, at least in the near term (10, maybe 20 or more years, unless some ameliorating constitutional changes are made or until demographic transformations render White-Anglo conservatism in rural states and regions politically mute). In this respect, we really have to look to history to understand what is going on here, how it represents a playing out of certain, diverse underlying ideological currents across the American political spectrum, and why it reflects a magnification of certain defects in constitutional design. It suffices to say, I do not think it will do to laugh off the Tea Party faction of the Republican Party as either a fleeting moment of reactionary rural populist opportunism or a clandestine, corporate-financed campaign to wage war on residual pieces of the New Deal, although both of these aspects are clearly evident in the Tea Party movement. On the contrary, I think that the Tea Party may represent a truly revolutionary moment in American federalism, if those of us who have the wherewithal to interpret political realities in radical ways also have the courage to point out that we may have reached a constitutional impasse! Maybe it is time for a self-reflective moment on where the Constitution of 1789 is going, how it defines us as Americans, and what the consequences would be in throwing it out and starting over again.
The Federal Budgetary Malaise
To start, we need to recognize the fact that the federal budgetary process, as a structured set of practices involving the executive branch (the President's office, the Office of Management and Budget (OMB)) and both houses of Congress (and the non-partisan Congressional Budget Office (CBO)), has not generated a formal joint budget resolution since fiscal year 2010. That is, Congress, which holds the "power of the purse" for the federal government, has not come to an agreement, embracing both houses, on spending priorities and limits for the federal government since the first year of Obama's presidency. Rather, it has generated a series of Continuing Resolutions (CRs)/Continuing Appropriations Acts, that have parcelled out additional funding for federal programs on limited timeframes to prevent a broader governmental shutdown, or, as in October, to reopen shutdown federal programs. (An invaluable explanation of these processes, together with an analysis of federal budgetary appropriations and tax revenue sources, is available at the National Priorities Project, online at: http://nationalpriorities.org/en/).
In the most basic sense, the inability of Congress to come to a consensus on spending reflects the fact that the two houses have been divided between the Democratic and Republican parties since the 2010 mid-term elections, coinciding with the Tea Party "revolt." On the other hand, Congress was similarly incapable of coming to a consensus for the 2011 fiscal year at which time the Democrats still retained control over both houses. Congress' inability to pass a budget resolution for 2011 had much to do with the acrimonious debate over the Patient Protection and Affordable Care Act (PPACA) (subsequently and derisively labeled "Obamacare"), which passed along strict party lines but induced defections in budget negotiations among conservative Democrats who feared Republican challenges in their districts. Not wanting to make this set of posts a discourse on the merits and problems of the PPACA, which deserves its own set of posts, the political challenge posed by federal health insurance reform to the Democratic Party and the Obama administration cannot be overstated. Having said this, there is obviously more going on here than opposition to Obamacare and disgust by conservatives for the manner in which the PPACA was passed by Democrats. In my view, the status of relations between Democrats and Republicans and, consequently, between the Democratically-controlled Senate and Republican-controlled House invokes a much longer history, rooted in the compromises of the New Deal, the perceived consequences of legislative enactments in, especially, the Second New Deal, the solidification of anti-New Deal alliances by Southern Democrats/Dixiecrats and Northern libertarian Yankee Republicans, the partly successful and partly failed big-government projects of the Great Society, and the vicious political imprints left on the country by the Civil Rights movement (i.e. yes, I firmly believe that there is an undeniable, the by no means all-encompassing, racial component to what is happening in Washington, not lost on the reality that the President is Black!). All of these animosities come to the fore, in divergent degrees, across the landscape of Tea Party mobilizations.
Before advancing an analysis of the Tea Party mobilizations, it is worth elaborating on what has been at stake in budgetary conflict since the 2010 mid-term elections. The mid-term elections in 2010 were not only a default referendum on Obamacare. They were also a referendum on the American Recovery and Reinvestment Act of 2009 (i.e. the Obama economic stimulus act) that introduced an expanded range of tax credits and federal funding for "shovel-ready" infrastructure projects, and on the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that attempted to correct the sources of the subprime mortgage crisis without either reinstating the Glass-Steagall Act's firewall between investment and commercial banking operations or unambiguously foreclosing the possibility of federal bailouts of banking or financial service firms "too big to fail." The diminished Senate Democratic majority and victory of Tea Party Republicans in seizing control of the House, thus, reflects, a range of grievances in the economic policies undertaken in the first Congressional session of the Obama administration.
If, in this respect, the PPACA was the main target of the Tea Party mobilization before the 2010 midterms, Republicans have also been broadly focused on deficit reduction and "entitlement reform," seeking to reconfigure Social Security and Medicare in ways that will reduce federal liabilities in regard to mandatory expenditures in these programs. I want to directly address this issue of entitlement reform in this set of posts, because it is legitimately pertinent to Republican arguments on management of federal expenditures in the long term (i.e. beyond the depletion of the Security Security Old Age/Survivor Insurance and Disability Insurance Trust Funds) and deserves to be taken seriously as a broader policy issue. Finally, there is the issue of tax reform and, in particular, reorganization of federal revenue generating sources to reduce or eliminate marginal tax rates, eliminate wide ranges of reductions and allowances to "simplify" the tax code, and, more generally, save higher income groups lots and lots of income tax liability while shifting tax burdens disproportionately toward middle and lower income groups (as nonsensical as this sounds, given that the predominant base of support for the Tea Parties resides among lower to middle income White rural populations!). I intend to dismiss the income tax issues raised by the Republican Party, in general, and by the Tea Party Republicans, in particular, as efforts by regionally concentrated reactionaries to create or otherwise sustain plutocratic interests! As far as I am concerned, in the current age of economic globalization with relatively free transnational capital flow and enhanced, nearly-instantaneous information transmission, the sorts of information failures and institutional rigidities precluding rent-seeking behavior by American plutocrats no longer sustain domestic investment and employment expansions arising from reductions in the highest marginal tax rates of the U.S. income tax code.
On the other hand, it is entirely unclear what the Democratic Party has had to offer the country in the period since the 2010 midterms. We have, to a substantial degree, drifted into a sort of partisan impasse in programatic creativity by the Obama administration and Senate Democrats where neither the President, nor Harry Reid, nor any other Senate Democratic leader appears capable of commanding public attention and support for major legislative/governmental projects with an adequate moral force to marginalize and/or shame the Tea Party Republicans and, thus, ram through
important pieces of federal legislation. Rather, the Obama administration has been endlessly preoccupied with struggles against Tea Party Republicans in the House over increases in the debt ceiling to prevent a default on existing U.S. debt. If, in this regard, the administration bemoans the notion of governing from fiscal crisis to fiscal crisis, it appears as though there is no meaningful way that we will see a tangible transformation of the current political reality in Washington at least until the 2014 midterms. Even here, the battlelines are unlikely to change at all! In 2014, as far as I can presently predict, a House Republican majority with an ideologically strong Tea Party minority will return to face off against another Senate Democratic majority and a lame duck Democratic administration, with no plan to deal with immigration reform, deficiencies and problems with the PPACA, recurring financial sector regulatory deficiencies, environmental regulatory issues/proactively addressing climate change, and the continued need to proactively address mandatory spending/entitlement programs in the face of demographic changes increasing the weight of retirement and Medicare expenditures as a share of total federal spending.
Certain comments on the current fiscal state of the federal government should be advanced. First, the size of the federal deficit, in absolute terms and in relation to total gross domestic product (GDP), has declined substantially (see table 1 below). In fiscal year 2010 (the last fiscal year with formal Congressional joint budget resolution), the federal deficit (subject to the addenda below) constituted 8.927 percent of U.S. GDP. In fiscal year 2013, the federal deficit was 4.2 percent of U.S. GDP. To a great extent, this decline in the federal deficit was accountable to "sequestration" imposed by the Budget Control Act of 2011, which extended a temporary increase in the U.S. debt ceiling. There are adequate reasons to criticize the logic of sequestration, as well as the contentious, divisive process through which it was imposed as a default solution for a lack of partisan compromise on structured spending cuts, but it ultimately achieved the goal for which it was instituted - it shaved federal expenditures across the board.
Table 1: U.S. Gross Domestic Product, Federal Government Spending, and Budget Deficit, FY 2000 to FY 2014
Year Gross Dom. Product Federal Spending Deficit Deficit/GDP
(Bil. $ Nominal) (Bil. $ Nominal) (Bil. $ Nominal) (Percent)*
2000 9,951.5 1,788.95 -236.24 2.37
2001 10,286.2 1,862.85 -128.23 1.25
2002 10,642.3 2,010.89 157.75 1.48
2003 11,142.3 2,159.90 377.59 3.39
2004 11,853.3 2,292.84 412.73 3.48
2005 12,623.0 2,471.96 318.35 2.52
2006 13,377.2 2,655.05 248.18 1.86
2007 14,028.7 2,728.69 160.71 1.15
2008 14,291.5 2,982.54 458.55 3.21
2009 13,973.7 3,517.68 1,412.69 10.11
2010 14,498.9 3,457.08 1,294.37 8.93
2011 15,075.7 3,603.06 1,299.59 8.62
2012 15,684.8 3,537.13 1,086.97 6.93
2013 16,202.7 3,454.25 680.27 4.20
2014 17,011.4 (est.) 3,777.81(est.) 744.19(est.) 4.37
*Budget Surplus/GDP in italics.
Source: "Government Spending Chart, Fiscal Years 2000 to 2014," by USGovernmentDebt.com, at:
http://www.usgovernmentdebt.us/download_multi_year_2000_2014USb_15s2li101mcn_F0fG0fH0f.
Acknowledging that federal deficit spending has been in decline as a proportion of GDP over the course of the recovery from the mortgage market meltdown and its concommitant global financial market crisis, we do need to question the logic of sequestration from Keynesian perspective, acknowledging in turn that unemployment rates remain above seven percent nationally, with significant declines in labor force participation, while the federal government has failed to make any tangible efforts, since the Obama economic stimulus, to stimulate employment growth. Considered in relation to a context in which interest rates/yields on federal Treasury Bonds (see table 2 below for market yields on two popular short term maturities since the passage of the Budget Control Act in August of 2011 and Standard & Poor's downgrading of U.S. debt) over various terms have measured historically low rates, with inflation-protected seven-year and lesser term bonds experiencing negative inflation adjusted returns(!), many liberal economists, like Paul Krugman (see "How the Case for Austerity has Crumbled," in The New York Review of Books (June 6, 2013), at: http://www.nybooks.com/articles/archives/2013/jun/06/how-case-austerity-has-crumbled/?pagination=false) and even Larry Summers (!!) (see "Summers: Economic Growth More Important than Deficit," interview by Steve Inskeep on National Public Radio "Morning Edition," at: http://www.npr.org/2013/10/29/241548516/summers-economic-growth-more-important-than-deficit), have been quite justified in pointing out that the costs to maintaining such elevated rates of unemployment offset any gain from the forced fiscal austerity of the sequestration. If, based on the data below, the U.S. government is, at present, effectively borrowing at negative rates of interest (i.e. investors are paying the U.S. government to borrow their capital, even after certain bond rating agencies have downgraded the quality of U.S. debt!), then it stands to reason that the government enjoys substantial leeway to prioritize spending, at the very least, on infrastructure investments that might benefit the long run competitiveness of the U.S. economy in relation to other national economies by reducing transportation and communications expenditures for domestic businesses. Such investments are not being made because of persistent ideological differences between the houses of Congress and the Obama administration concerning the role of the federal government in fiscal policy management.
Table 2: Nominal and Inflation Indexed Market Yield on 5 and 7-year U.S. Treasury Constant Maturity Bonds, Aug. 2011 to Sept 2013
Month/Year 5-Year Nominal 5-Year Ind. 7-Year Nominal 7-Year Ind.
(Percent/yr.) (Percent/yr.) (Percent/yr.) (Percent/yr.)
Aug. 2011 1.02 -.75 1.63 -.36
Sept. 2011 .9 -.72 1.42 -.39
Oct. 2011 1.06 -.63 1.62 -.28
Nov. 2011 .91 -.85 1.45 -.46
Dec. 2011 .89 -.78 1.43 -.44
Jan. 2012 .84 -.92 1.38 -.55
Feb. 2012 .83 -1.11 1.37 -.69
Mar. 2012 1.02 -1.03 1.56 -.57
Apr. 2012 .89 -1.06 1.43 -.65
May 2012 .76 -1.12 1.21 -.79
Jun. 2012 .71 -1.05 1.08 -.82
Jul. 2012 .62 -1.15 .98 -.92
Aug. 2012 .71 -1.19 1.14 -.94
Sept. 2012 .67 -1.47 1.12 -1.17
Oct. 2012 .71 -1.47 1.15 -1.18
Nov. 2012 .67 -1.38 1.08 -1.13
Dec. 2012 .70 -1.40 1.13 -1.13
Jan. 2013 .81 -1.39 1.30 -1.04
Feb. 2013 .85 -1.39 1.35 -.94
Mar. 2013 .82 -1.43 1.32 -.97
Apr. 2013 .71 -1.38 1.15 -.97
May 2013 .84 -1.14 1.31 -.69
Jun. 2013 1.20 -.59 1.71 -.21
Jul. 2013 1.40 -.45 1.99 .02
Aug. 2013 1.52 -.33 2.15 .15
Sept. 2013 1.60 -.17 2.22 .34
Source: Board of Governors of the Federal Reserve, "Selected Interest Rates (Daily) - H.15," historical data on respective series for 5-year and 7-year nominal rate and inflation indexed/Treasury inflation protected securities (TIPS), at: http://www.federalreserve.gov/releases/h15/data.htm.
Recognizing that Krugman, Summers, and others are clearly on to something when they argue that the federal government should pursue a more aggressive counter-cyclical fiscal policy, oriented toward correcting the sorts of negative changes to long term employment growth in the U.S. economy induced by the "Great Recession," we need to recognize that the debate over fiscal policy management is not being waged entirely by academics, policy analysts, and politicians endorsing a pristine Keynesian reading on the disastrous consequences of austerity in a time of stagnant or declining aggregate demand. Academic proponents of austerity, like Reinhart and Rogoff (in case this is the first time you've heard of these tenured Harvard folks and their thesis, see "Growth in a Time of Debt," American Economic Review, Papers and Proceedings 100 (May 2010), 573-578, at: http://scholar.harvard.edu/files/rogoff/files/growth_in_time_debt_aer.pdf; also see the econometric refutation of their thesis, in large part, by my former housemate Thomas - Herndon et al, "Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reihart and Rogoff," Political Economy Research Institute (PERI) working paper #322 (April 2013) at: http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf), advance a divergent logic in which the borrowing power of governments stifles the capacity of the private sector to accumulate capital and achieve robust output and employment growth. To be fair to such economists, such theorizations on crowding out of capital markets by the public sector are logically consistent if we regard capital markets as strictly finite (and, at some abstract level, they certainly are). On the other hand, in an age where free transnational capital mobility is increasingly becoming a reality of the global economy, it is difficult to logically envision how public sector crowding out of capital markets could seriously hinder private sector growth. Nonetheless, theories like that of Reinhart and Rogoff, reiterated by partisan advocates of restraining expansions to public debt, resonate in the minds of citizens who see the accumulation of public debt and its intergenerational transfer as a unconscionable act of irresponsibility. Through such (opportunistic) appropriations of faulty, perhaps ill-conceived, academic analyses, out-of-date orthodoxies gain a new lease on life as confirmations of the worst fears of citizens that their government is acting irresponsibly and that their progeny will suffer for it unless something is done, right now, no matter how badly the sacrifices will hurt!
And, thus, we have experienced a sequestration, a partial government shutdown, and, twice, the threat of sovereign default by the federal government, with its attendant consequences, including a downgrading of U.S. debt, in part, in the name of controlling federal government spending, deficits, and accumulations of debt. My point, in proceeding with this set of posts, will be to broaden out this analysis, with the recognition that the ideologies embodied by the Tea Party movement sufficiently large that they cannot be reduced to economic arguments on federal spending. Rather, I am convinced that we are dealing with a movement embracing a much broader political and cultural vision, rooted within the long history of American federalism and, at least potentially, threatening to fatally damage its Constitutional foundations.
