THIS PAST SUMMER’S wholly manufactured “debt crisis” contains important lessons for those concerned about the poor. Right-wing Republicans committed to radically cutting government services, including Social Security, Medicaid, and Medicare, misused a usually routine vote about raising the national debt ceiling, the amount of money the Treasury Department is allowed to borrow to pay its bills. Since everyone knew our bills would have to be paid and the debt ceiling eventually raised, the ceiling wasn’t the point. Cutting government spending was.
As damaging as the specific budget cuts will be, however, the implications of the process are much wider.
First, in addition to the agreed-upon $2.1 trillion in government spending cuts, more are virtually certain. Most economists state that the initial government financial stimulus two years ago was inadequate to revive the economy; most also acknowledge that another, similar or greater, stimulus is necessary and that now is absolutely the wrong time to decrease government expenditures. Despite that, President Obama and a majority of Congress have accepted without question the need to reduce the deficit immediately. Republicans have absolutely ruled out significant tax increases. Given their willingness to threaten the country’s economic stability, new taxes are unlikely. So simple logic requires that if the deficit must be reduced and income can’t be increased, spending must be cut even more. And if history is any guide, the hardest hit will be the poor.
The second lesson relates to added government dysfunction that weakens our democracy: Threats of significant economic damage are now acceptable bargaining tools. As politicians readily acknowledged, the threat worked so well it will be used again. Normal congressional procedure calls for spending negotiations to go through the budget process, which includes opportunity for thorough debate and—most important—citizen input. Polls in the weeks before the debt ceiling deal revealed that about 70 percent of Americans favored tax increases on the wealthy. Yet despite the polls and expert economic advice, radical Republicans held the financial integrity of the United States hostage to an anti-democratic demand for overall cuts without tax increases.
The third lesson, hardly remarked upon in the media, is that international corporate finance made a move toward undermining American political independence. Before the resolution of the crisis, the credit ratings agency Standard & Poor’s (S&P) threatened to downgrade the U.S. government’s credit rating not only if Congress failed to raise the debt limit, but also if the agreement did not contain at least a $4 trillion reduction in the deficit over the next 10 years. Moody’s (another credit rating agency) released a similar statement, though without mentioning a specific amount. S&P followed up on its threat and lowered the rating; if the other two main agencies had followed suit, this could have raised the interest rates the government would have to pay on its loans, creating billions of dollars in annual expenses.
The purpose of the agencies is to determine the likelihood that bondholders will get their money back. Even after the crisis, investors still flocked to buy U.S. Treasury bonds as the safest in the world. So why the threats of downgrade?
It’s true that S&P’s downgrading has had little noticeable effect and that Moody’s didn’t carry out its threat, despite an agreement that didn’t meet its implied requirements. But notice what just happened. Private companies publicly attempted to force the U.S. to pass specific legislation, under threat of economic disaster. For those of us marking the decline of the American empire, these were significant steps in the increasing dominance of global finance. They will add to pressure for more spending cuts and, once again, the poor will suffer.
Let’s not bury our heads in the sand. A Supreme Court decision giving corporations unlimited political influence, the overwhelming power of media to influence public opinion, and congressional decision-making yielding to threats: These are all signs that our democracy is trickling away.
David Hilfiker writes about economics, politics, faith, and the decline of the American empire. He is a member of the Eighth Day Faith Community and lives in Washington, D.C.