Debt Policy Debate, What Elites Are Missing

The elites are crucifying the Republicans for not making the a debt ceiling deal with Obama. Last night, there were several tweets on Twitter about how the Republicans have lost control of their party.

One minor point. Republicans believe in decentralization. Their party is more like herding cats. Democrats believe wholeheartedly on central command and control. Much easier to herd the natives.

This says a lot about differences between Democrats and Republicans and why the gulf between them is wide. And of course, the Grey Lady missed it again. It is important to also note that there are “elites” that want to simply dictate in both parties.

To understand what is going on you have to look at a lot more than just this budget negotiation, a lot more than the CNBC Rick Santelli rant, although the stimulus bill is the catalyst that brought definitive action. You really need to go all the way back to the year 2000.

It was a pivotal election. Bush beat Gore. But even to this day Democrats say it was a sham election. They say the Supreme Court was rigged, votes rigged, and they have been playing hardball ever since.

But more importantly, what did Bush do with a majority? Most fiscally conservative Republicans expected Bush to cut the size and scope of government. Even in the campaign, Al Gore wanted to put “social security in a lockbox.” Everyone in Washington knew there was going to be a problem with entitlement spending.

Bush tried a weak attempt at beginning the privatization of Social Security. He failed and quickly abandoned it in favor of a tax cut. We had just survived the NASDAQ ($NASD) melt down. The economy was hurting.

Then there was 9/11.

9/11 was a tragedy in more ways than one. It allowed Congressional Republicans lead by Speaker Dennis Hastert and Whip Tom DeLay to spend on pet projects that were pent for years when the Democrats controlled at least one lever of power in government. Under the guise of retooling the nation to be prepared for a terrorist attack, to get ready and then actually fight a war, Republicans spent like crazy and Bush conveniently forgot where his veto pen was.

The 2006 election wasn’t about the war. It was about spending. Democrats used the deficit as a cudgel and made it a campaign issue. They won the hearts and minds of independents. Independents are generally “fiscally conservative, but more socially liberal”. As long as the government stays in control, spending is held relatively in check, they are happy.

Bush found his veto pen all of a sudden. Then we had the financial crisis in 2008.

The 2008 election was about a lot of things. One of the main drivers was that people felt more confident about Obama to handle the financial problems than McCain. After all, Obama was from Hyde Park where Milton Friedman lived-and McCain even said he was weak on economics!

Boy, weren’t the independents surprised in February of 2009.

Independents who were fiscally conservative were mobilized. They were fed up. That’s what the election of 2010 was about. It wasn’t just the House of Representatives that turned over. State legislatures around the country turned over-many for the first time. For goodness sake, in politically corrupt Illinois a Republican won the Senate seat. In Massachusetts, a Republican won a Senate seat. Republican governors won nationwide.

It wasn’t social issues that drove the politics. It was spending and government regulation. Only Republicans could articulate coherent talking points about what to do-and some Republicans in office, like Mitch Daniels, even had done something about it.

That brings us to the debate on the debt ceiling today. There are two approaches on the table.

One, raise spending and taxes, and raise the ceiling high enough so we don’t have to debate it again-the Democratic approach. Even the middle class is going to get whacked with tax increases in the Democratic approach because they will lose deductions, even though their marginal rates won’t go up. The higher income earners, the “rich”, get socked worse because their marginal rate goes up and they lose deductions.

The second is the Republican approach. Cut spending and hold rates steady, combined with a slight raise of the ceiling.

There isn’t a lot of compromise room between those two positions. Forget about a big budget deal, because we have already started the 2012 campaign.

There really are only two ways out of the knot we are in. Hold taxes steady, raise the debt ceiling enough to get us through November 2012, and cut some spending that is easy to cut so it looks like something is happening. Or, walk away from the table-let Obama use procedure to raise the debt ceiling-and force the US Treasury to find ways to delay certain payments, modify payments and struggle a little.

Then we will have an election in November of 2012 and see who wins. My bet is that the fiscal conservative piece of the independent voter wins out over the socially liberal part. It’s clear from Obama’s record and statements that he doesn’t have a clue about running an economy-or what it takes to create a climate of economic growth.

Those are really the cards the Republicans and Democrats hold. Has nothing to do with management or control of either party. The Inca’s were right. 2012 will be a big year.

Economic Freedom=Individual liberty It’s really all you, and the folks in Washington need to know. That is, if they want to remain in office.

Thanks to Nice Deb for the link! Welcome to her readers.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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