Entitlements. Sounds awful, right? Like something greedy people think they should be given without having worked for it. Well, in political speak entitlements refers to the social safety net programs that are beloved by a large majority of Americans: Social Security, Medicare, and Medicaid. Programs that most of us pay into all of our working lives and medical care for the very poor. This was Mitt Romney on the subject of entitlements:
There are 47 percent of the people … who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That’s an entitlement. And the government should give it to them. And they will vote for this president no matter what…. These are people who pay no income tax.
I’m part of that 47%. Count me among the people who believe that one of the richest countries in the world by per capita GDP should be allocating this wealth so that ALL Americans can eat, have a roof over their heads, and get medical care. These should be the birthright of all Americans, not privileges for the few. For workers at Walmart who make $8.81 per hour for an average of 34 hours per week, some of Walmart’s 2012 healthcare plans would cost between 77% and 104% of the employee’s gross income and many get their medical care through Medicaid. What would you call these workers? Slackers who have the nerve to feel entitled to eat and get health care? Or people who need and deserve a safety net?
The same goes for Raising the Debt Limit. Sounds fiscally irresponsible, right? As if not raising the debt limit would make the government live within its means. Another example of political-speak in which night becomes day and up becomes down.
Congress votes to allocate money to certain programs, i.e., it runs up the credit card debt. When the bills come due there are two ways of paying, print money or take on debt. However, Congress can choose to do neither. It can refuse to pay the bills on debt it already owes either by printing more money or by allowing the government to take on more debt, i.e.,raising the debt ceiling. The result: Default on debts already incurred … by the very Congress that incurred those debts. Doing this really is analogous to jumping off a cliff and dragging the U.S. behind. By Congressional choice!
Since 2010, the U.S. Treasury has been paying negative real interest rates on government debt. We pay less in interest than inflation. This is because the U.S. is seen as a safe haven for the world’s money. If Congress is so foolish as to wilfully choose not to pay its debts that will no longer be true. In fact, havoc can be wreaked just by making default seem plausible. In 2011, Congress nudged up close to default. President Obama signed the Budget Control Act of 2011 into law on August 2, 2011, the very date it was estimated that U.S. borrowing power would be exhausted. Four days later, Standard and Poor’s downgraded the U.S. government bond credit rating for the first time ever. The Dow Jones Industrial average lost 635 points (5.6%) in one day and world markets swooned. Since other major credit agencies kept their AAA estimates of U.S. credit and Europe seemed even less safe than the U.S. as a place to keep money, America has remained a safe haven for the world’s money. If we make world markets insecure about our commitment to pay our debt a second time, this advantage could be gone in a heartbeat.
Former Treasury Secretary Lawrence Summers warned in July 2011 that the consequences of such a default would be higher borrowing costs for the US government and the equivalent of bank runs on the money markets and other financial markets. In January 2011 Treasury Secretary Timothy Geithner warned that “failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs. Even a very short-term or limited default would have catastrophic economic consequences that would last for decades.”
Why are Republicans in Congress willing to risk this? I guess they figure that if they can’t convince voters of the value of their ideas, they can get their way by blackmailing President Obama with Armageddon. I have no idea where this will end, but let’s at least understand what’s at stake. Let’s look past the elegant frame to see the ugly picture.