Friday, July 8, 2011

Republicans Preparing to Fold

Watch out. Here it comes again. John Boehner and Eric Cantor are planning another Republican collapse on the nation's fiscal nightmare. Obama and his allies seem to have scared the Republican leadership into accepting an essentially worthless "compromise" to get to a debt extension deal.

All the talk about how both sides have to give is silly. The nation's problems boil down to social security, medicare and medicaid. Nothing else matters. Cutting military spending, raising tax rates, and so forth are irrelevant and amount to mere political theater. If you don't tackle the entitlements in a serious way, then the next stop will be, within a few years, the beginning of a US default. The numbers make this outcome obvious.

We are four to five years behind Greece. If Republicans fold and accept another sham deal, then the country really has no hope of dealing with this situation and within a decade the US will begin to lower payments to those over 65 then relying on social security and medicare. The country will have no choice.

Meanwhile, the new higher tax rates will issue in a generation of no-growth and permanently elevated unemployment rates. Tax revenues will actually fall since the higher rates will discourage rich folks from showing taxable income (they do have a choice, you know) and will stifle economic growth.

It looks like the same old story. The Republican leadership is not really serious about dealing with federal spending. They are worried that voters won't stick with them if they hang tough, so they are bailing.

What Republicans should do is agree to a tough two month deal to extend the debt. Obama has said he will veto a two month deal. Let him. Then he becomes 100% responsible for the government shutdown. That is the only route available for Republicans if they lack the courage to push for serious entitlement reform in a longer term deal.