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The fight in Congress over the budget is important

Despite the jargon and inside the beltway focus, the fight in Congress over the budget is important.

This is a commentary that is right up my alley as an economist. It is also a commentary that I fear will be met with eyes glazing over the minute you, the listeners, learn it is about the FEDERAL BUDGET. But please do not be put off. Despite the fact that it seems like “inside baseball,” discussing conflict between the Biden Administration and the House Republicans reveals important political and economic issues. Yes, it is often framed in arcane language about continuing resolutions, the debt ceiling, reconciliation bills, --- BUT, the fight over the budget is very important because it relates to national priorities.

Let’s set the stage. When I recorded today’s commentary, the country was staring down the barrel of a government shutdown. Absent a vote in Congress by December 16, the federal government will run out of money to pay its bills. Now, much of the short run issues involved a one-week continuing resolution --- kicking the can down the road for that week. (And sometimes, Congress kicks the can down the road a lot further). All the words, “continuing resolution” mean is that the money authorized for spending up to December 16 continues to be spent at the same level in all discretionary categories. In addition to spending that has to be appropriated every year (at the “discretion” of Congress, hence the adjective) there are LOTS of automatic expenditures built into the budget. Interest on the national debt paid every year depends on how much National Debt is (31.4 trillion on Wednesday --- though some of that was held within the government.) and the interest rate paid by the Treasury (which is around 2 percent these days). Other automatic payments are for Social Security pensions, disability payments, unemployment compensation, Medicare and other entitlements. These are automatic because they depend not on specific annual acts of Congress but on how many people qualify to receive these payments. Thus, the arguments raging between the Democrats and Republicans are about the discretionary part of the budget --- which is about HALF the entire budget.

Should they agree on a one-week continuing resolution, that means that the members of the Senate are close to some kind of deal. That was the media view as of Tuesday the 13th. As I wrote this version on December 15, it appeared that there would be a one-week continuing resolution so that SOME agreement would be hammered out before Friday the 22nd.

[For details as of Tuesday, December 13, see Aiden Quigley and Lindsey McPherson, “Congress: Deal close on fiscal 2023 spending framework as stopgap prepped. Democrats seem willing to accept lower nondefense spending level, given slim margin and prospect of GOP control next year.” Roll Call, December 13, 2022, available at

https://rollcall.com/2022/12/13/deal-close-on-fiscal-2023-spending-framework-as-stopgap-prepped/]

The question of whether or not the Republicans and Democrats in the Senate would come to a deal (the House remains under Democratic control till January 3 so anything the Senate Democrats support will probably sail through the House) seems to rest on whether Senate Republicans will listen to the request of House Republicans to refuse to come to ANY DEAL with the Democrats. The reason Republican members of the House want NO DEAL is because the Republicans are poised to take over the House. Once they do that, some in the House Republican caucus have promised to hold the raising of the debt ceiling limit hostage to cuts in Medicare and Social Security.

Okay! Okay! Here we go with the jargon. What is the “raising the debt ceiling limit” issue? Put bluntly, the issue arises because there is a ridiculous law that requires that Congress vote TWICE every time it decides to borrow money. First, they vote on how much money to spend and how much money to borrow. Then, when the time comes to ACTUALLY borrow the money, they have to vote AGAIN to increase the amount of money they are allowed to borrow. It makes no sense BUT it allows for a great deal of mischief. After appropriating (and spending) the money, if Congress fails to raise the debt ceiling, then the Treasury would not be able to actually spend the money already appropriated, in effect stiffing payees (bondholders, etc.). Such a refusal to raise the debt ceiling (which has happened a few times in the past --- most recently twice during the Obama Administration) there is a danger that the failure of the government to spend money already allocated will create a financial crisis.

[For a deep dive into one specific crisis in 2011 see The Investopedia Team, “2011 U.S. Debt Ceiling Crisis,”

Fact Checked by Michael Logan, Updated December 04, 2020, available at https://www.investopedia.com/terms/1/2011-debt-ceiling-crisis.asp. In this situation, both sides compromised but President Obama’s Administration was forced to spend less money than they wanted to in order to get the Republicans to agree to raising the debt limit. For an article foreshadowing the fight once the new Congress convenes, where once again raising the debt ceiling will be a bargaining chip for the Republicans, see Sam Brodey, “Dems Take Hard Line on Debt Limit Talks: Absolutely Not, Democrats are looking at the prospect of Republicans trying to extract concessions for raising the debt limit and taking their own hard line.” The Daily Beast, (Dec. 15, 2022), available online at https://www.thedailybeast.com/democrats-take-hard-line-on-debt-limit-talks-absolutely-not?via=newsletter&source=DDMorning&utm_source=Sailthru&utm_medium=email&utm_campaign=221215-Digest%20AM&utm_term=F%20List%20Daily%20Beast%20Newsletter%20AM]

When the House reconvenes in January under Republican control, they can threaten to hold the economy hostage by refusing to raise the debt limit unless the Democrats agree to cuts in Medicare and other spending that actually helps people.

That’s why this dispute is so important for the rest of us. It ain’t just “inside the beltway” that it matters.

Going all the way back to the Reagan Administration (now over 40 years ago!) there has been a tug of war within the budget process between federal spending on National Defense (which Republicans and Democrats alike support at very high levels) and federal spending on everything else which Democrats try to protect against persistent Republican efforts to cut dramatically.

[I wrote a whole book about it which described such battles up through 1998, including two government shutdowns in 1995 and 1996 where the Gingrich dominated Congress battled President Bill Clinton. It’s available free on line: Surrender, How the Clinton Administration Completed the Reagan Revolution (University of Michigan Press, 1998, pbk 2000). The political magic act pulled off too often by right-wingers with too much connivance and enabling by Democrats is to never directly oppose spending that people want – like aid to education, public health expenditures, basic scientific research, the list goes on and on. Instead, the right wing argues that we “spend too much” in general and that because we spend too much we borrow too much and because we borrow too much our children and grandchildren will be in the poor house because they have to pay off the debt we have run up. This is all total garbage (the United States treasury has always met its obligations even though they never even paid off the Civil War debt – instead they roll it over) and I have argued this in MANY commentaries. Anyone who wants to follow those issues can just read my book.]

Right now, the current short run budget debate relates to discretionary spending on non-defense budget items. Both sides agree on a dollar figure for defense spending, despite the misgivings of many progressives (and a handful of libertarians) that the US spends much too much money on National Defense. However, the Republicans object to increased funding for non-defense spending. And their long run goal (probably going all the way back to the 1970s) has been focused like a laser on trying to figure out how to cut Social Security and Medicare which are the largest non-defense parts of the federal budget.

[The story is told in my book --- the two government shut downs that occurred in 1995 and 1996 were about an effort by the Gingrich dominated Congress to cut taxes dramatically and pay for the tax cuts by cutting Medicare. Clinton vetoed those budgets and the two were at impasses through two government shut downs. Ultimately, Gingrich blinked!]

Let’s unpack this. WHY do both groups agree on defense spending? Sorry to be blunt but it’s because a) it’s easy to convince the public it’s necessary, and b) it makes rich people richer. The national defense infrastructure – what President Eisenhower called the “military industrial complex” --- is a taxpayer funded gravy train for companies that make deadly high-tech devices like airplanes and missiles, a taxpayer-funded gravy train for research oriented universities and companies, and a great way for individuals to climb the ranks from private to general (if they are lucky enough not to get killed or maimed along the way) where they can enjoy prestige and influence by moving to the private sector once they put in their 20 or 30 years.

So why cannot the politicians agree on the rest of the budget? Because the spending on “general government” includes things businesses don’t like. “General government” funds the Labor Department which investigates, for example, wage theft from workers. It funds the IRS which tries to catch tax cheats. It funds the Environmental Protection Agency that tries to catch polluters. I could go on and on.

As for non-discretionary spending on Social Security and Medicare, these are especially galling to the right wing. One aspect of the original Social Security Act that often flies under the radar are unemployment compensation payments to workers. This produces a floor below which wages cannot fall. If there were no unemployment compensation, the unemployed would drive down wages at least to the legal minimum. In other words, the unemployment compensation payments reduce the dependency of ordinary working Americans on the generosity of employers. The very existence of these payments reduces the power of employers over their workers.

Social security pensions, survivors’ benefits and disability payments allow people to retire, allow survivors a stream of income in case they cannot find well paid work, and does the same for the disabled. This shrinks the available labor force and forces businesses to pay higher wages than they would absent these benefits.

Meanwhile, Medicare pays doctors and hospitals much less than they could get on the so-called free market while protecting retirees from bankruptcy.

Much of what the government does other than defense spending has been anathema to the business establishment since back in 1935, when the Republican minority tried to stop the Social Security Act from passing. Ronald Reagan made a name for himself on national television when he gave a speech claiming that passing Medicare would be the beginning of the end of freedom --- yes, he said that in the 1960s.

[If you don’t believe me, check out this Wikipedia page: https://en.wikipedia.org/wiki/Ronald_Reagan_Speaks_Out_Against_Socialized_Medicine. And I think this is a recording of the speech itself -- https://www.youtube.com/watch?v=AYrlDlrLDSQ]

I hope that what I said on the air on Friday, December 16 was clear despite the references to what sometimes appears ridiculously complicated. Despite the fact that budget fights seem like “inside the beltway” arcane hard-to-follow issues, the simple version is important to understand. The federal budget includes lots of things that we the people want and need and the right-wing efforts to cut it are framed in falsely apocalyptic terms about us not being able to “afford it.” (Something that they NEVER say about the so-called defense budget.). The fight over national priorities remains extremely important today.

Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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