At lunch the other day, a friend who recently returned to New York after living abroad for many years asked me what will happen if the federal debt ceiling is not raised before the official drop-dead date of Aug. 2.
I said pretty much what President Obama said at Wednesday’s news conference, when he declared that the fallout from missing the deadline, and any resulting default on Treasury debt, would be “significant and unpredictable.” But I was prepared to make two rock-solid forecasts:
Number one: Things that are impossible will not happen.
Number two: Things that are inevitable ultimately will.
I am not sure the president sees things the same way. There he was at the news conference, blasting away at “millionaires and billionaires, oil companies and corporate jet owners” the way he did during the 2010 congressional campaign, and arguing that any “balanced” scheme to reduce Washington’s budget deficit and slow the growth of its yawning debt would have to include the elimination of what he calls “tax breaks” for those favoured groups.
This is the same president who agreed in December to a two-year extension of the Bush-era tax cuts for all taxpayers, including those millionaires and billionaires, the companies that fill our gas tanks, and any businesses that own their own aircraft. He agreed to that extension when his own party still had an overwhelming majority in the House of Representatives and a large margin in the Senate.
The reporters at the news conference asked a lot of good questions (some of which the president, for his own political convenience, bluntly refused to answer), but the one I would have asked is: “Mr. President, if you couldn’t get the taxes you wanted through a Congress that Nancy Pelosi and Harry Reid led with overwhelming majorities, why do you think any such thing is possible now? As a follow-up question, can you explain why you expect something impossible to happen?”
The president did acknowledge that there will have to be changes in the federal government’s big entitlement programs, though he did not say what those changes might be. This modest concession to reality pays homage to both of my predictions. The entitlement troika of Medicare, Medicaid and Social Security cannot operate indefinitely under their current designs. This makes the status quo impossible to sustain, and therefore makes change inevitable. Republicans have been saying this for years; increasingly, Democrats and groups aligned with them are agreeing that change must come, though not necessarily in the ways most Republicans want.
No less an admirer of the status quo than AARP has finally conceded the inevitability of changing Social Security. The group’s policy chief, John Rother, acknowledged as much in mid-June, though the organisation has tried to spin this reversal as anything other than a change in its position.
Once we get past the denial stage, we can have a serious discussion about the types and the magnitude of changes we are going to see. For Social Security, the formula inevitably will involve some serious tinkering with retirement’s key variables: the amounts being paid, the age at which people can collect payments, the tax rates that are used to fund the payments, and the type and amount of income that is subject to tax to fund the payments.
Such adjustments are inevitable, because virtually everyone agrees that Social Security retirement payments will not disappear for people who now receive them or for those who expect to receive them in the near future.
What about a major change to the program’s structure, such as a conversion from government-guaranteed payments for life to, say, a system based on privately owned accounts in which each generation will pay for its own retirement rather than rely on its children and grandchildren?
Such a change would, in my opinion, be wise and equitable, but it is not inevitable. It remains an open question whether Social Security will someday be truly self-sustaining, rather than an unfunded promise that each generation foists upon its successor.
There are similar problems with Medicare, whose funding mechanism is linked to Social Security’s, and Medicaid, in which the federal government sets coverage standards but shares the costs of meeting those standards with states that, increasingly, find the costs unaffordable.
Some change in those programs is inevitable, even if the specific changes called for by Republicans, such as Rep. Paul Ryan’s proposal to turn Medicare into a government subsidy for seniors to buy private medical insurance, are not.
Americans are hardly alone in calling for the impossible or denying the inevitable. Just this week, crowds demonstrated throughout Greece to protest austerity measures that the country had to enact in order to continue drawing on an overseas financial lifeline.
The alternative was a Greek default on its debt. Its government would have simply run out of money. It would have likely been forced out of the euro currency zone (which might not even have survived a default); its banks would fail and its economy would collapse. Is this what those demonstrators wanted?
Certainly not. They were demanding the continuation of a world that no longer exists, one in which a nation that lied about the state of its finances had access to cheap credit from global lenders that enabled its citizens to live a life they could not afford. Such a life became impossible the minute the truth about Greece’s finances became known, as it inevitably would. But that did not stop the Greek demonstrators from demanding the impossible.
The irony may be that Greek default itself is indeed inevitable. The country’s accumulated debt is so large relative to its economy, and its long-term growth prospects are so poor, that it is highly likely – probably inevitable – that not all the borrowed money will ultimately be paid back. The International Monetary Fund and the other European countries assisting Greece know this perfectly well. Their apparent hope is to forestall the inevitable long enough for the continent’s banking system and the global economy to better handle the fallout. Or maybe they are just denying the inevitability of the inevitable.
But the rules tell us that the impossible never happens and the inevitable always does. Greece’s Parliament voted to enact the austerity measures around the same time that Obama started his news conference.
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