Some Historical Background and Suggestions on the "Debt Ceiling" Question

Progressives are rightfully condemning the dirty debt deal and rightfully so.

The CPUSA has made its position clear on what was a kind of double “hostage crisis,” that is, the Republican Right enforcing party discipline on the whole Republican party and then having the Democratic leadership and the Obama administration negotiate with them largely on their own terms, to the detriment of all except them.

Condemning the right Republicans though is a bit like condemning Hitler after the Munich Agreement, which Neville Chamberlain called a “compromise” where Hitler met him half way.  It is largely beside the point.

Proclaiming that both parties are parties of monopoly capital and this proves it, while true in a sense, is also, along with blaming Obama (today I heard one angry liberal senior citizen call him an “economic Uncle Tom”) is also counterproductive and very much beside the point.

What is to be done and what can be done?

First we should look at a little history.  The U.S. government had no debt ceiling until U.S. Entry into WWI and a partial ceiling on debt accrued from the sale of war bonds called Liberty bonds.

The present aggregate debt ceiling was put into effect by conservative coalition of  congress in 1939 after they had made major gains against the New Deal government, in the 1938 elections using the sharp recession, a backlash against the mass strikes. And the slogan, “spend and spend, tax and tax,” to  get enough seats to block further New Deal legislation and attack the budgets of existing progams.

The purpose of the debt ceiling as everyone with any sense knew at the time , was to cripple New Deal social programs and social spending, which was why the “ceiling” was established at 45 billion when the debt itself was 40 billion.

It was raised to 300 billion during WWII.  Then it dropped off  to 275 billion and stayed that way through the Korean War, which the Truman administration funded with major progressive tax increases with no harm to the economy (the economy continued to boom).   Since then of course it has been raised many times, especially from the beginning of the 1980s.

There are many nations which don’t have a “debt ceiling” and we don’t need necessarily have to have one either.  It isn’t in the constitution and we didn’t have any one until 1917 the present one until 1939.  present deal does what the conservative coalition tried to do then.

As for the deal itself, it can be broken in a creative way by the Democrats, who can delay, undermine, and resist its establishment.

 For example, what about social service “over-runs.”  The real cost of military spending is much higher than the official costs because the contractors in effect know that they will spend more than the original estimates and do with political acceptance.  How about putting forward cuts in Social Security, Medicare, etc. and then “quietly” not cutting anything, announcing “human capital” over-runs. (I am really not kidding).

What about the right Republicans?  They don’t control the Senate and their control over the House can be stalemated by mass pressure, especially from senior citizens on vulnerable Republicans, once citizens begin to understand that the “done deal” can be undone.

Also, one can campaign to take the “debt ceiling” out of politics by eliminating it.  Its initial purpose was to block social spending.  It has been raised from 45 billion in 1939 to over 14 trillion today to pay for wars, fund the military industrial complex and of course over the last thirty years pay for enormous tax cuts to the corporations and the wealthy.

      The present deal can only reduce purchasing power and increase unemployment, so let’s undo it—so many Democrats have broken so many promises to their constituents and supporters on the center left that they can certainly break this promise/deal to their enemies.

But you say, what about default.  All of this happened because of the Democrats fear of default.  The bond ratings.  Standard and Poors.  Inflation.  High interest payments.

An economist friend of mine told me something very interesting today.   Before this deal, he heard a discussion by the leaders of an association of credit raters, which represented Standard and Poors and other major raters.  They pretty much said that they didn’t really understand what was going on in Washington.  The trends on bond interest were down.  The U.S. was largest economy in the world—it wasn’t Spain or Greece.  Even a short term default wouldn’t have much of an effect on anything and the U.S. because of its central role in the global economy as both a producer and for good and ill consumer had a lot of bargaining power and wiggle room to operate.  The Chinese and Japanese for example, the major U.S. creditors, were not going to sell off U.S. bonds given their relationship to the U.S. economy.

      These statements, coming from fairly reasonable representatives of finance capital, suggest that the administration and the Democrats really didn’t have to panic and cave –in.  It also suggests that they can begin now with major support from people’s movements to undo this done deal.

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  • It was very different Steve, but not necessarily easier. The Democrats had until 1938 a much larger majority, but the racist and largely mercenary Southern Democrats held the most powerful positions in Congress due to seniority, Roosevelt was the leader of the New Deal coalition, which included anumber of progressive Republicans as against the conservative coalition of the majority(large majority) of Republicans and Southern and some machine Democrats(Roosevelt was often able to buy many of the Southern Democrats).
    It isn't easy for Obama to be like Roosevelt and it wasn't easy for Roosevelt either. The most important difference was the existence of militant peoples movements, especially the labor movement in which CPUSA members played a central role at all levels, including leadership, in creating the conditions that led Roosevelt to conclude that his administration's and capitalism's future was to borrow from their program

    There is an important difference though. Roosevelt didn't talk much about "bipartisanship" until WWII and while he often compromised and sometimes sold out his supporters, he did it on his own terms, not terms set by the conservaive coalition.
    Norman Markowitz

    Posted by norman markowitz, 08/07/2011 8:09pm (11 years ago)

  • If one were to compare Democratic control of Congress under the New Deal to today's Congress, I wonder what it would look like and if people would then stop implying its real easy for Obama to be like FDR.

    Posted by Steve C., 08/05/2011 7:13pm (11 years ago)

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