Team Obama Offers The GOP A Suicide Pact on the Debt Ceiling

(Photo credit: JoeInSouthernCA)

by Ralph Benko, Contributing Author: The Fiscal Cliff, the Sequester, and the Continuing Resolutions now are behind us. The next Episode in the Continuing Saga is looming: the Debt Ceiling. President Obama has put down his table ante, as described by the Washington Post headline, “Obama budget would cut entitlements in exchange for tax increases.” In plain English Team Obama is offering the Republicans a suicide pact euphemized as a “grand bargain on the debt.” Instead of a suicide pact America needs Congress to tackle the Growth Gap.

Washington is treating the symptom rather than the disease. Moreover, the president (not uncharacteristically when it comes to economic policy, where he shows a curious gap in common sense resembling that of his predecessor, Jimmy Carter) is proposing a cure worse than the disease. With the economy continuing to sputter, and unemployment verging on the criminal for so late in a recovery, raising taxes is courting a double dip to the Great Recession. Suicide pact, anyone?

Prominent Republicans have been asking America to swallow poison pills as well. These are a recipe for the continued degradation of the Republican brand which used to, under Reagan, stand for a climate of massively good job creation and equitable prosperity. Reversion to something resembling the GOP’s “rootcanalonomics” that preceded Reagan is damaging the standing even of Rep. Paul Ryan — as reported by Howard Kurtz in The Daily Beast, Why Paul Ryan’s Star Dimmed.

But the thought leaders of the House GOP are beginning to shift from feckless masochism back to policies of the “Pursuit of Happiness.” Government policies in support of the pursuit of happiness truly serve Americans well … and are a recipe for political victory.

There is another, far better, route for America, and the Republicans, than to pursue even momentarily Mr. Obama’s proffered sugar-coated Satan sandwich (as the eloquent Rep. Emanuel Cleaver, D-Mo, characterized, by tweet, Washington’s 2011 debt limit deal).

The road map for that route is called the Kadlec Curve. As this columnist previously has written (and bears repeating):[Charles] Kadlec formulated an insight in a Forbes.com column late last year that, little by little, is beginning to rock Washington. He found it hidden inside a footnote of a Congressional Budget Office report.

“[T]he impact of growth on the deficits … can be found in Appendix B of The Budget and Economic Outlook: Fiscal Years 2012 to 2022: every one-tenth of one percent increase in the growth rate will reduce the federal budget deficit over the next 10 years by $314 billion.” [Emphasis added.]

Because real growth currently has been, and is, trending well below the CBO assumption of 2.8%, the scope of 4% growth should be considered $6, rather than $4, trillion in “enhanced” federal revenues.

$6 trillion in new federal revenues is just the byproduct of 4% economic growth. Of even greater importance: an economy generating more (and better) jobs than there are workers. That could cut the Gordian knot of immigration reform: America will be yearning for more immigrants, documented or not. 4% growth (somewhat less, actually) makes SocialSecurity and Medicare solvent for as far as the eye can see. 4% growth is the key to the goal of Rep. Marsha Blackburn (R-TN) to rebrand the GOP as the Great Opportunity Party. It helps the Democrats, who are identified, in the popular imagination, with empathy for workers and have-nots. And 4% growth will create a climate for spending reform based on policy quality, rather than fiscal panic.Rep. Kevin Brady (R-TX) now, systematically, is calling out this “Growth Gap.” This action on his part is a big change and a big deal. The Joint Economic Committee, which Brady now chairs, may be the most authoritative, and influential, “think tank” in Washington. When the JEC talks, officials listen. And should.

Here is what Brady recently had to say about the Growth Gap in a recent column in The Hill. Key findings? “[O]ur economy will be $20 trillion smaller in 2052. That’s an annual gap larger than our entire economy today. … (a) 1 percent growth gap means the loss of $93 trillion from our federal coffers through 2052.”

Brady:[T]he Congressional Budget Office cut its estimate of the potential real GDP growth rate to 2.2 percent, more than a full percentage point below America’s average since 1950. This might not sound like much, but it has a huge impact on jobs, our economy and our ability to pay the future bills of the federal government.

At America’s traditional 3.3 percent economic growth rate of the past half-century, the real economy doubles every 22 years. At the new lower rate of 2.2 percent, it takes almost 32 years to double in size — a decade longer.

A permanent growth gap of 1 percent translates into a slower growth by one-third for young Americans seeking their first job and families hoping to reach their American dream.

A permanent growth gap of 1 percent means our economy will be $20 trillion smaller in 2052. That’s an annual gap larger than our entire economy today.

It will also be harder to balance the federal budget because the 1 percent growth gap means the loss of $93 trillion from our federal coffers through 2052. For perspective, the entire unfunded liability of the U.S. government, including Social Security, Medicare and federal pensions, is less than that — $87 trillion.

This prospect of a “new normal” with permanently slower growth for America’s economy should be a red flag for all Americans.Washington cannot be content to allow the United States to falter from the ranks of the world’s strongest economies. Together we must focus on reversing this growth gap and creating a second American century in which we remain the world’s most dominant nation for economic freedom, opportunity and prosperity.

Brady has a laudable practical recipe for closing the Growth Gap. But the greater significance of what is emerging from the Joint Economic Committee is not its answers but its questions. So long as Washington continues to ask the wrong questions no solutions are possible. Futility is the outcome of treating the symptoms rather than the disease. The right questions will yield the right answers.

President Obama, for his proposed suicide pact, received this back-handed compliment from the Washington Post: “The budget will break with the president’s tradition of providing a sweeping vision of his ideal spending priorities, untethered from political realities.”

By “tethering” himself to “political realities,” however, the reliably reactionary Post means offering the Republicans a suicide pact rather than, as previously, yanking at an imaginary Republican leash, shouting “heel, boy, raise taxes!” and then criticizing the GOP as obstructionist for noncompliance. Neither the Post nor the White House seems to get it.

But the House Republicans are showing signs of getting it. Brady, with his indictment of the Growth Gap, merely is the most prominent. And there are smart serious people on the Democratic side of the aisle, such as Rep. Chris Van Hollen (D-MD), who might be willing to sit down with their Republican counterparts, roll up their sleeves, and get serious about how to grow the economy.

The House Republicans have an opportunity to use the debt ceiling to drive home the point that Washington has been getting the wrong answers because it has been asking the wrong questions. This would be far more productive than playing a game of Chicken with Obama as some of my fellow Tea Partiers would like.

America (and the world) can reach its goals of full employment and deficit reduction by, and only by, focusing on enacting policies well calculated to allow a climate of equitable prosperity to flourish. This worked under Reagan and Clinton. It would work again. 1% greater growth may not sound like much but is the difference between continuing the world’s Little Dark Age and entering a new golden age. Memo from the citizens to our officials: Time to tackle the Growth Gap.
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Ralph Benko is senior advisor, economics, to American Principles in Action’sGold Standard 2012 Initiative, and a contributor to the ARRA News Service.The article which first appeared in Forbes was submitted for reprint by the author.

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