Now that the great day has finally come on which John Boehner and Eric Cantor get to seize the reins of power in the House of Representatives from Nancy Pelosi and Steny Hoyer, they will soon discover that with great power comes a less welcome fellow traveler — the absolute certainty that they will share the blame for any future economic misfortunes that afflict the American public.
No longer can Republicans snipe from the sidelines, free of any responsibility to govern. For the past two years they’ve had little compunction about declaring responsibility for every perceived bad economic indicator — every upward blip in the unemployment rate, every slip in value of the American dollar — to be the fault of the Democrats ostensibly running the show. Never mind that the roots of the crisis that crushed the U.S. economy go back decades and were nourished by policy decisions enacted by both parties. The reality of American politics is that we are always living in the instantly sound-bitten present. If Obama almost immediately “owned” the horrible economy he inherited from George W. Bush, then Boehner et al. should be equally culpable for anything that happens tomorrow.
But who knows, maybe they’ll get lucky. A batch of new economic data released on Tuesday confirmed the growing presumption that the U.S. economy is back on track. Spending on construction grew sharply in December, manufacturing activity continued to rise, and the U.S. auto industry finished the year with its best non-Cash-for-Clunker month since before the full onset of the crisis. If the trend continues, we can certainly expect conservative pundits to waste no time declaring that the recent spate of economic growth is a clear consequence of the Republican victory in the midterm elections.
But yesterday’s news hardly ensures future prosperity. And if Republicans in the House actually carry out their expressed agenda, there’s every possibility that they could drive the U.S. economy right back into the ditch.
Take, for starters, all the tough talk about refusing to vote for a higher debt ceiling when the U.S. government hits the currently mandated limit, probably sometime in March. We’ve heard a lot of fear-mongering from right-wing pundits and politicians over the last two years about the possibility that big deficits will ultimately lead to a crash in the dollar and high inflation, or even worse, encourage the “bond vigilantes” to force up Treasury yields so high that the U.S. can no longer afford to service its debt. But nothing remotely close to this scenario has happened so far. Indeed, the dollar has only strengthened — by about 3.8 percent — since the latest Federal Reserve move to inject more liquidity in the U.S. economy. U.S. Treasuries are still widely regarded as one of the safest places to put your money in the entire world. Inflation is low.
But it’s hard to imagine a more effective way of destroying global faith in U.S. credit than to start jabbering away about a willingness to allow the U.S. to default on its debt. The notion that the U.S. government might not be able to borrow money to make the interest payments on its already existing debt is a far more apocalyptic scenario than anything the bond vigilantes could ever dream of achieving.
To be fair, a scenario in which the debt ceiling doesn’t get extended is hard to imagine. Since 1962, the debt ceiling has been raised 74 times, according to the Congressional Research Service, and there’s a good reason why: The consequences of not doing so would be too awful. Destroying the credit of the world’s biggest economy should be too dumb even for the most doctrinaire Tea Partyer.
But you don’t have to go the entire distance to put fear in the markets. Investors don’t like uncertainty — or at least that’s what Republicans kept telling us during the fight over tax cuts. If Republicans overplay their hand and demand extreme spending cuts or drastic changes to healthcare reform in return for authorizing a hike in the debt limit, they could inspire Obama to find his inner Clinton and call their bluff. The longer the standoff goes on, and the longer Treasury scrambles to scrape cash together from all kinds of unconventional sources to keep writing its checks, the larger the chances will be that markets get seriously disrupted. What better way to crash the dollar than to give foreign holders of U.S. debt a clear and present reason to dump their holdings? If the U.S. stock market implodes because of Republican intransigence on the debt ceiling, the public won’t have any trouble knowing whom to point the finger at.
As for spending cuts, the Republicans seem determined to punch a hole in domestic spending programs aimed directly at job creation, education and helping states deal with their dire financial situations. Again, it’s difficult to imagine a worse way to bring down the unemployment rate or cripple consumer demand than to throw a bunch of teachers out on the street or force states to cut the public payrolls, at the very moment the economy has just started to gain sustainable momentum. Just when we thought we had escaped the double-dip recession, they dragged us back in!
President Obama, en route from Hawaii to Washington, told reporters that on Air Force One that it was perfectly normal to see newly resurgent Republicans “play to their base for a certain period of time.”
“But I’m pretty confident that they’re going to recognize that our job is to govern and make sure that we are delivering jobs for the American people and that we’re creating a competitive economy for the 21st century, not just for this generation but for the next one.”
One hopes that the president is just being polite. Because there’s very little evidence to support his confidence, and every reason to believe that the Republicans will do everything in their power to carry out the exactly the agenda that they have set forth with so much gusto.