Insight – a Fort-Night Before Financial Armageddon

He Didn’t Blow Up the World in Order to Save it

In 1982, Ronald Reagan traveled to London to give one of the defining speeches of his presidency before Members of the British Parliament.  The speech described the ideological struggle between freedom and totalitarianism, and ended famously in Reagan predicting that Soviet communism would end up on the “ash heap of history.”

But as important as the conclusion of the address – since borne out – was the change in context that Reagan introduced as the basis of competition between the US and USSR.

Reagan refused to accept the moral equivalency of Soviet methods, policies and goals with those of the United States and the West, which had been the basis of the Cold War relationship and Detente in years past.

Instead of accepting the Soviet Union as a permanent power in the global order, Reagan saw Soviet communism as an aberration and distortion of the basic rights of free people, and refused to provide it continued legitimacy.

He would negotiate where there were areas of mutual agreement, but otherwise, Reagan advised that the West would no longer accept but challenge the basic precepts of communist rule.

Reagan’s policy was was both revolutionary and deeply controversial.  And for many of its harshest critics, the most difficult aspect to understand was that in Reagan’s construct, there would be no give and take on matters of principle.

So, fast-forward 29 years.

We are now two weeks from a default on the national debt.

After a roller-coaster six-weeks of negotiations, debt ceiling talks have collapsed on the matter of taxes.

House Speaker John Boehner realized after he was waist-high in deliberations that even the most superficial revenue increases would be rejected by his Caucus, and none more adamantly then by the Frosh-87 from 2010.

Despite the fact that President Obama risked the howls of his progressive base by at least tentatively putting entitlements on the table to reach an agreement, the GOP rank and file have adamantly refused to put revenue increases on the table in return. 

Instead of engaging in the traditional Washington kabuki theater, the House GOP simply refuses to dance.

The unwillingness to deal is as perplexing as it is frustrating. What is apparent is that the House GOP – particularly the Frosh-87 – are no longer playing by Washington rules. No, to understand the approach by the House GOP on debt, spending and taxes you need to look at Reagan’s approach with the Soviets.

With fixed principles, House Republicans are stating that all policy prescriptions are not equal and valid, and, critically, that there is no reason to indulge in supporting bad policy, just to get a deal.  The approach fundementally questions the legitimacy of Democratic policy in the national debate.

This is not about a trade, it’s about viability. It’s not a matter of choice, its a matter of efficacy.

But there are limits here, and Reagan is again the example.

Reagan’s eight years of confronting the Soviet Union never included a Cuban Missile Crisis-like showdown.  While Reagan’s rhetoric was sharp, American actions were always measured.

The worst crisis between the US and USSR during Reagan’s presidency occured when the Soviets shot down a South Korean airliner in 1983.  62 Americans, including a sitting Member of Congress, were killed in the attack.

Yet at no time did the US ever consider a military option to retaliate for the attack, risking global nuclear war. Instead, the Administration opted for an aggressive public diplomacy campaign of public comdenation, which further undermined the credibility of the aging and transitional Soviet leadership.

Reagan was not prepared to initiate apocalypse in order to achieve free markets and the inate rights of man.

House Republicans, in contrast, are playing with fire on the debt ceiling in a way that Reagan would never have.

Beyond the tax issue, a disturbing number of Republicans either simply refuse to raise the debt limit, or worse, believe that defaulting on the US debt will not be as dire as experts warn.  

Indeed there is a pronounced contradiction in the House GOP’s concern for mounting debt that will be shouldered by our children and grand children, but their apparent ambivalence of defaulting on debt now and its consequences, unless the GOP gets everything it wants.

Let us speak plainly.

Greece, which has the GDP of the state of Maryland, is effectively holding the European Union and then the global financial system hostage due to the risk of default on its debt.

Greece.

If actionos by Athens can have a direct impact on Main Street, is it beyond possible that a default by the nation that holds the world’s reserve currency could be anything less than catestrophic?    

The House GOP needs to internalize the fact that destroying the US economy by forcing a default in order to save the economy it is not a viable political or policy strategy. The facts of divided government prevents the will of the House from being the will of the government, no matter how many times Republicans claim to represent the will of the people.

Like Reagan in 1983, the GOP needs to recognize that the “nuclear option” does nothing to advance the agenda but that they can remain principled while seeking to avoid a destructive economic event.  In this case, to settle for the next best course of action; a course which plants responsibility for raising the debt, and specifying measures to offset the rise, squarely with the President and Democrats.

It is unsatisfying, its immediate impact will not be wide ranging cuts, but it is the only realistic option given the political divide.

Mitch McConnell went public with just such a plan yesterday. 

While widely criticized in conservative circles, the plan is a canny and effective tool to hold Democrats to account for increased government spending between now and November 2012, providing the American people with the clearest possible choice.

Reagan’s consequential presidency launched the largest peacetime expansion of economic growth in post WWII history, creating more than 20 million jobs. His foreign policy catalyzed the eventual collapse of the Soviet Union, less than a decade after his “ash heap of history” speech.

Reagan also raised the debt limit at least three times.

In finding a way to be responsible, House Republicans would be in good company.