PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington. In the coming weeks in Washington, Congress is going to have to vote on whether to raise the debt ceiling or not. That’s the maximum amount the federal government is allowed to borrow. Right now that number’s $14.3 trillion, but the government already has borrowed over $13 trillion. So it’s not going to be very long before it hits that ceiling. So what happens if Congress refuses? Well, a meltdown of the global financial system, Treasury bills–no new Treasury bills offered, and not able to service Treasury bills that have already been offered. So on Sunday, Senator Lindsey Graham, Republican from South Carolina, threatened on Meet the Press not to vote for raising the cap. Here’s what he had to say.
DAVID GREGORY, PRESENTER, NBC’S MEET THE PRESS: If you talk about the budget, you talk about spending. How will you vote on the debt ceiling? Will you vote to raise it, which is a vote that’ll come up in relatively short order?
SEN. LINDSEY GRAHAM (R-SC): Right. Well, to not raise the debt ceiling could be a default of the United States on bond and Treasury obligations. That would be very bad for the position of the United States and the world at large. But this is an opportunity to make sure that government is changing its spending ways. I will not vote for the debt ceiling increase until I see a plan in place that will deal with our long-term debt obligations, starting with Social Security: a real bipartisan effort to make sure that Social Security stays solvent, adjusting the age, looking at means tests for benefits. On the spending side, I’m not going to vote for a debt ceiling increase unless we go back to 2008 spending levels, cutting discretionary spending.
JAY: Well, over on ABC, Austan Goolsbee, chairman of the US Council of Economic Advisers, said if Congress fails to raise the debt ceiling, the impact on the economy would be catastrophic. Here’s what he had to say.
AUSTAN GOOLSBEE, CHAIR, COUNCIL OF ECONOMIC ADVISERS: I don’t see why anybody’s talking about playing chicken with the debt ceiling. If we get to the point where you’ve damaged the full faith and credit of the United States, that would be the first default in history caused purely by insanity.
JAY: Now joining us from Kansas City, an expert on insanity in Washington, William K. Black. Bill Black’s associate professor of economics and law at the University of Missouri – Kansas City. He teaches about white collar crime, public finance, antitrust law. And he’s the author of the book The Best Way to Rob a Bank Is to Own One. Thanks for joining us, Bill.
WILLIAM K. BLACK, ASSOC. PROF. OF ECONOMICS AND LAW: Thank you.
JAY: So what do you make of the latest insanity?
BLACK: Well, it’s right out of the movie Blazing Saddles. And, of course, the famous case is the sheriff is surrounded by the angry townspeople about to lynch him, so he takes out his pistol, points it at his head, and says, don’t move or I’ll shoot–
[Blazing Saddles film clip plays]
BLACK: –which, of course, is spectacularly funny, because that’d be an insane thing to do. But it’s precisely the threat that the Republicans use, time after time, and they use it not because they’re insane but because it works, because it causes Obama and some other Democrats to suddenly give them things that they want.
JAY: So do you agree with this assessment? If the lending cap is not raised, it would be catastrophic for the global financial system. Is that a true statement?
BLACK: There would be a default on the United States debt. Interest rates on US debt would skyrocket. The Dow Jones would probably fall 1,000 points, and most every stock market in the world would fall. And everyone would know that it was Lindsey Graham and the Republican Party’s fault for causing the crisis. You may recall when the Republicans killed TARP the first time around that something similar happened and they immediately caved. This would be vastly worse than what happened on the first TARP vote.
JAY: So then it’s kind of a silly bluff, because there’s no way that the Republicans, as far as we can understand it, would ever allow such a thing to happen, you–one would think an easy bluff for the Democrats to call.
BLACK: Well, but it’s not silly if you’re playing with people that don’t understand how to deal with bullies, and it doesn’t appear that the Democrats have figured–or at least key Democrats in the White House, have figured out that this is a standard ploy in game theory. And it was of course pulled on President Clinton. Remember, after the Democrats lost control of the House and legislature, the Republicans shut down the federal government, and expecting that Clinton would cave rather than have that happen. Well, instead, Clinton told the American people the Republicans were irresponsible and endangering the nation, and the Republicans lasted exactly one day. And once you call their bluff–then, of course, when they threatened it again, Clinton just smiled, and the Republicans went away and had to play nice.
JAY: Well, let’s talk about the substance of the issue. Graham’s saying that long-term debt’s going to be out of control or is out of control, and the first way to take it on is reform of Social Security. So they want to raise the eligibility age–the talk now is up to 69–and they want to do various other kinds of means testing, for example. So what do you make of the necessity to deal with Social Security if you want to deal with long-term debt?
BLACK: None of the things that are the predicate for this make any sense. First, we aren’t in a deficit crisis currently. We’re in the Great Recession. And in the Great Recession, you need to run deficits to get out of the hole much faster, get people working. And right now, in fact, the deficit is too small, and Lindsey Graham agrees, because Lindsey Graham was part of the majority, substantial majority, that just voted to decrease taxes, to increase the deficit, to try to deal with the recession. And that we are not in trouble historically. In other words, the deficit as a percentage of GDP and wealth is far lower in the United States now than it has been at other times in our history. The key is to reestablish growth, and running a short-term deficit during a great recession is one of the ways you do reestablish that growth. Beyond that, cutting Social Security does nothing to help with the, quote-unquote, "solvency", which is itself a non sequitur in the case of the US deficit. And there in fact isn’t a crisis in Social Security. And if you take the age at which you can earn Social Security from 65 to 79, you do substantially reduce the value of the benefits to people. And this is particularly true for people who work through labor. You know, for somebody who is a professor, retiring at 69 instead of 65, you know, that’s not such a big deal for me. But if you’ve been working very hard, you simply cannot–in physical labor, you know, the typical 66-year-old can’t do that. So that’s a very big deal for poorer people.
JAY: What are the legal obligations, if any, to people who have been paying in all these years? And if you’ve been–started working at–when you’re 20 and you’re now 60 and you’ve been paying in for 40 years expecting to retire at 65, now all of a sudden the contract gets changed on you and you’re told it’s 69, I mean, is that legal? Congress can simply pass the law and that’s the end of the story.
BLACK: It’s legal. The issue is ethics and how you treat people. And the issue is: does any of this make any sense? And it really doesn’t make any sense.
JAY: The main argument that Graham and his colleagues are making is less about short-term deficit and more about long-term debt. You’ve seen these graphs where they show within 20, 30 years the debt ratio becomes unsustainable and you–. And so that’s why they’re going after retirement issues, ’cause in theory it affects long-term debt more while still allowing some short-term stimulus. You see this in Europe as well. They’re–the big austerity measures in Europe are mostly focusing on age people receive pensions. What do you make of this long-term debt issue?
BLACK: This is silly math that doesn’t make any sense, to take these curves and extrapolate them. And everybody knows that, by the way.
JAY: Bill, you say, well, everybody knows this about, you know, the fact that once growth begins, assuming it does, that these numbers start to change. But if everybody knows it, then the Republicans really know it, and not just the Republicans but all the voices preaching for austerity right now. If they don’t really believe this issue, why are they going after Social Security? It can’t even be that politically favorable for the majority of people that vote for Republicans, even if some of the Tea Party movement might like it.
BLACK: You’re exactly correct. They do know it. You know, there is no question but that [Erskine] Bowles and Alan Simpson know these things. Why? In the case of people like Simpson, what they hate is Social Security. And what they hate about Social Security is that it works so well. Social Security transformed the United States, from a place where to be old was typically to die in poverty, to a place where you have a dignified life as a senior. And Social Security, as a result, is a spectacularly popular program that–you know, majorities in the tune of 80 percent of Americans think it’s great. It’s also a program that is really efficient, really well run–in contrast, by the way, to private health insurance, which is a total pain in the rear and much more expensive and has far more paperwork. So this is a program that the Democrats created over Republican opposition that has proven immensely popular with virtually all Americans, including Republicans, and the Republican leadership hates it and wants it to be a failure. And like so many other areas, in regulation, for example, financial regulation, the Republicans are creating a self-fulfilling prophecy of failure, that they will huff and they will puff and they will cause deficits and they will cause, you know, even a default on the debt if necessary to prove that Social Security has failed. So what they saw, those people like Simpson and Bowles, was a unique political opportunity to cut back on Social Security. The entire deficit commission, after all, was not even supposed to deal with Social Security. It is those two cochairs that decided that they were going to go well in excess of their appropriate mission and take a slug and try to get people to attack Social Security. They think they have a political avenue to do that right now, given how upset people are about the Great Recession.
JAY: So this is to a large extent an ideological position, in other words, proof that government can’t do things. And even if they wind up not winning on Social Security, they help create an atmosphere in Washington for getting other things that they want.
BLACK: No, it’s more than that. They want to make changes that will make Social Security far less popular with Americans. And the two things they’re suggesting will make Social Security far less attractive to the American people. If they means test it in the way they do, they will dramatically reduce the support of middle- and upper-middle-income Americans for Social Security. And if they raise the minimum age from 65 to 69, they’ll make it a program that far fewer poorer laboring working-class Americans will even be able to take advantage of before they die, and that will reduce its popularity with that group. So this is actually a pretty clever mechanism to take a second whack at Social Security five years from now once they’ve dramatically reduced support for the program.
JAY: Thanks very much for joining us, Bill.
BLACK: Thank you.
JAY: And thank you for joining us on The Real News Network.
End of Transcript
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