Ben Bernanke was chair of the Federal Reserve during what became the worst financial crisis since the Great Depression. An inside look at the meltdown from the former Fed chair and his defense of bailing out Wall Street.
Washington’s battle over the budget has intensified as the March 4th deadline for an agreement nears. Democrats over the weekend signaled a willingness to accept a stop-gap measure offered by Republicans. If approved, it would keep the government operating until mid-March. But the underlying conflict would remain. Republicans want $61 billion in spending cuts, which Democrats believe are too severe and would hurt economic recovery efforts. Complicating prospects for a longer-term solution are tea party lawmakers. They say even the Republican plan does not go far enough. The budget showdown.
- Naftali Bendavid national correspondent, The Wall Street Journal.
- Norman Ornstein resident scholar at the American Enterprise Institute and coauthor of "The Broken Branch: How Congress Is Failing America and How to Get It Back on Track."
- Matt Kibbe president and CEO of FreedomWorks and co-author with former House Majority Leader Dick Armey of the book, "Give Us Liberty: A Tea Party Manifesto."
- Daniel Glickman senior fellow, Bipartisan Policy Center; former secretary of agriculture under President Bill Clinton; former Democratic congressman, representing Kansas.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Democrats and Republicans are working to reach a budget deal that would keep the federal government operating. Without one, a shutdown could occur as early as March 5. The last shutdowns were in 1995 and '96. Joining me in the studio to talk about the politics behind the budget debate and the economic risks involved, Norman Ornstein of the American Enterprise Institute, Naftali Bendavid of The Wall Street Journal, Daniel Glickman of the Bipartisan Policy Center and Matt Kibbe of FreedomWorks. He's co-author of "Give Us Liberty: A Tea Party Manifesto." Please join us, 800-433-8850. Send your e-mail to email@example.com. Feel free to join us on Facebook or send us a tweet. Good morning, gentlemen.
MR. NORM ORNSTEINGood morning, Diane.
MR. NAFTALI BENDAVIDGood morning.
MR. MATT KIBBEGood morning.
MR. DANIEL GLICKMANGood morning.
REHMNaftali, if I could start with you, what is in this proposed two-week extension, and why just a two-week extension?
BENDAVIDWell, it became clear that the two sides were not going to be able to reach a deal to fund the government to the end of the fiscal year by Friday -- this coming Friday -- which is when the current funding measure expires. And, in order to avoid a government shutdown, they had to do something short term. And what the Republicans did is they managed to cut $4 billion in this two-week extension, and that satisfies their more conservative members. But, in order to have the Democrats go along and not risk a shutdown, all those cuts are things the Democrats, by and large, support.
BENDAVIDSo it's a fairly deft move, I think, by Speaker Boehner to, on the one hand, put cuts in the short-term extension, but have them things that Democrats are going to be hard pressed to oppose. So, I think, it's virtually certain that that short-term extension will pass sometime this week, and we'll avoid a shutdown, at least on Friday, although it might make it harder for the long-term negotiations that are going to begin right after that.
REHMThat's what I'm wondering. Is this just kicking a ball down the line, Norm?
ORNSTEINYeah, it is, Diane. And think of this in a couple of ways. We're now skirmishing over the fiscal year that began last Oct. 1. Not a single one of the appropriations bills -- and, remember, we're not battling over the entire budget. We're battling over one-eighth of the budget. Basically, that's the discretionary non-security spending part of it. And, now, we're battling over half of that one-eighth for the remainder of this fiscal year. So we had a deliberate effort on the part of the Republicans, when they took their majority in November and took over in January, to keep a short leash on this part of it. They want to make cuts now.
ORNSTEINBut not only does this only put this off for two more weeks, but we are soon going to have another set of skirmishes as we reach the debt ceiling, which will probably be in April. And then we start in earnest on the 12 appropriations for the next fiscal year that begins next Oct. 1 and where we have pledges of much, much deeper cuts and where we might get threats of not just complete shutdowns but maybe even shutdowns in departments like Health and Human Services because of the attempt to defund the implementation of the health care bill.
REHMDaniel Glickman, does all this negotiating maneuvering make sense for the American public?
GLICKMANI'm sure they'll be fuddled by all of this. You know, I was in the Clinton administration in 1995 when the shutdown took place. I was secretary of agriculture. Ironically, the one appropriations bill that had passed was the agriculture appropriations bill. So we were the only department funded, and all the other departments were not funded. So there was a lot of personal jealousy about how I could get that done and nobody else could. But what was interesting about it was -- is that the hot political rhetoric and the polarization was actually much cooler then than it is now. That is the divisions are much greater now than they were back then.
GLICKMANSo I, frankly, worry about this. I think the American public believes that, well, there may be some ways in government that they want their passport office funded. They want their veterans programs funded. They want the basics -- the roads and sewers. They want the basics of governments funded. They're going to get more and more frustrated if there's no resolution.
REHMMatthew Kibbe, how is the Tea Party responding to all of this? What kind of deal will there be between ordinarily conservative Republicans and Tea Party members?
KIBBEWell, the challenge for the American people is we understand that the government is spending way too much money it doesn't have and that the American economy is swimming in a sea of red ink. And a lot of this posturing over the continuing resolution sort of avoids the real question of, how do we rein in the federal debt? How do we rein in the deficit? And 61 billion -- which, you know, a lot of Democrats are acting as if this is a dramatic cut in spending -- it's a tiny piece -- reduction of a overall dramatic increase in federal spending.
KIBBEAnd we're not seeing anyone really talk about it now. And Republicans have, at least, put some ideas on the table, but I think the Democrats, politically, are waiting for the Republicans to show their cards so that they can pounce on any proposed spending restraint as irresponsible.
REHMBut hasn't House Speaker Boehner said that he'd like to take on the Medicaid, Medicare?
KIBBEI think you have to. You have to -- if you really want to rein in spending, you have to put everything on the table. We have to have discretionary on the table. We have to have mandatory programs, like Medicare and Social Security, on the table, and we have to put defense on the table. But, I guess, what I'm saying is, from a Tea Party perspective, we haven't seen either party really step up to that. And, I think, Republicans are afraid, politically, that whatever they do, the Democrats will simply demagogue.
REHMAnd what about Tea Party members? Aren't they saying 61 billion isn't enough?
KIBBEThey are. Sen. Rand Paul from Kentucky actually put 500 billion in one year's savings, primarily from discretionary programs, and he did it simply to show the rest of the Senate what you can accomplish with discretionary, but that -- yeah, I think, he's also signaling that we need to put mandatory programs on the table as well.
REHMDan Glickman, what's the White House's strategy going forward, trying to meet some goals?
GLICKMANWell, it appears that the White House has proposed some discretionary cuts but has avoided, let's say, adopting what their -- the commission -- the bipartisan commission led by Erskine Bowles and Alan Simpson recommended. And so, you know, I think it's been a bit disappointing for a lot of folks to think that there's been no kind of what you call strong leadership at the top, pointing the way to a package of deficit reduction efforts because, you know, ultimately, the chief executive, the president, has to be the one that's leading this effort.
GLICKMANAnd -- now, that's not to say that the Congress is -- should be absent without leave. They shouldn't be. But,, I think their strategy has been to hold off for now, kind of -- it's a wait and see strategy, but being on the side of some cuts, but certainly not being on the side of any grand deficit reduction package. And my fear is, without that kind of executive branch leadership, it's going to be really tough to get the parties together.
REHMNaftali Bendavid, what would a shutdown look like?
BENDAVIDWell, that's a good question. I mean, one of the interesting things is that a lot of functions of the government actually wouldn't close down. The military wouldn't close down. The postal service wouldn't close down. The Social Security administration wouldn't...
REHMPostal services outside the government (unintelligible).
BENDAVIDRight. I mean, they have their own independent source of income.
BENDAVIDAnd Social Security administration does, too. And then there's a whole series of government documents that outline protected -- you know, the things that protect our health and our property would be protected. And last time there was a shutdown in '95 and '96, actually was -- you hear different numbers, depending what you count. But maybe 40 percent of the federal workforce was actually furloughed, and that was it. However, some of the things...
REHMExcuse me. Did the government have to pay back those people who were furloughed?
BENDAVIDWell, they did. They don't have to, but they did. And that's a whole other interesting part of it, which is no money goes out, but people -- I mean, what about the people who weren't furloughed? I mean, they come, and they work. They don't necessarily get paid. The assumption is that they'll then get paid later, but that doesn't have to happen. But in terms of the last shutdown, even though a lot of things did remain open, some of the things that closed really affected people.
BENDAVIDI mean, the national monuments closed, the national parks, the passport office -- and that wreaked havoc with a lot of people. NIH didn't accept any new clinical trials. So it was less, I think, the volume of things then closed down, then that there were certain very high-profile things that symbolized things to people and were important. And, I think, that's why so many people want to avoid a repeat.
ORNSTEINJust a couple of points. The Social Security checks go out for current recipients. They did in 1995. But a good portion of the employment base of the Social Security administration was, in fact, furloughed. So they did not process new claims for several weeks along the way. That same thing could happen, and you could get some disruption there.
REHMAnd neither side wants this to happen.
ORNSTEINNo. Well, and, of course, you're getting an interesting revisionist history by Newt Gingrich now, who, as he prepares for his presidential campaign, telling Republicans, actually we won in 1995 and don't fear a shutdown. One other point, I think, that needs to made, while last time federal employees did get their money back, contractors who get paid by the federal government did not. That has expanded dramatically. And one of the things to keep in mind is, if you get a shutdown, ironically, it can end up costing more money down the road. Because what contractors do is they then factor in a new risk premium and will up the value of their contracts the next time, so it's not all just shutting down and saving money.
KIBBEI think that the challenge for all of us is to understand that politics is never a rational way to allocate scarce resources, and there's all of these political posturings. And, I think, if you go back to 1995 and look at what actually happened, look at what actually happened in the budget. There was fiscal restraint. There was a balanced budget. And it's almost a historic anomaly that that was accomplished and perhaps some confrontation where Republicans are willing to sort of stand throughout the railroad tracks and say, we got to stop spending money we don't have.
KIBBEThey need to win that PR debate. And, right now, I think that the president has sort of squandered his Sputnik moment. He didn't put a serious proposal on the table in his budget, so Republicans are stuck with this quandary. We have to stop the red ink, but we don't seem to have participant partners.
REHMMatt Kibbe, president and CEO of FreedomWorks, co-author with former House Majority Leader Dick Armey of "Give Us Liberty: A Tea Party Manifesto." Short break. We'll be right back.
REHMWelcome back. Four guests are with me in the studio. Daniel Glickman, former Democratic congressman, former secretary of agriculture. Naftali Bendavid, he's national correspondent for The Wall Street Journal. Norman Ornstein, resident scholar at the American Enterprise Institute, co-author of "The Broken Branch: How Congress Is Failing America and How to Get It Back on Track." And Matt Kibbe, he's president and CEO of FreedomWorks, co-author with former House Majority Leader Dick Armey of the book, "Give Us Liberty: A Tea Party Manifesto." Some economists and budget analysts say the Republican plan could hurt economic recovery and jobs creation -- two totally conflicting views from The New York Times, The Wall Street Journal. How do you see it, Matt Kibbe?
KIBBEWell, I think that the government is so big now and that the deficit and the debt are such a burden on the private economy, I see it almost the opposite way. Keynesian economics doesn't explain what's going on right now. We have this massive fiscal drag that is preventing private businesses from hiring. It's preventing innovation from happening. And it all comes back to the fact that Washington is too big, and it's getting too involved in things that it really doesn't have any business being involved in.
GLICKMANI wish it were that simple. I'm reminded of the John Maynard Keynes line: "For every complicated problem, there is a simple and a wrong solution." I mean, I agree with some of what Matt says. Clearly, the deficit is a long-term cancer. It's a malignancy on this country's behavior and ability to function. But you need -- there are certain things in government you need to do. We need to have the smartest people in the world, which means we have to have a adequately funded education system.
GLICKMANYou got to have roads, sewer systems, water systems, highways, airports. So that means you got to fund infrastructure. I mean, there are certain things, from an investment perspective, that you just have to fund to be a strong economy in the world, to be a strong political force. So you can't throw the baby out with the bath water. That's why it takes judgment to make these decisions, and it's not just a unilateral way of dealing with it.
ORNSTEINYou know, let me break this down in a simple way, Diane. The focus right now is on $480 billion annually of the budget, which is most of what we see as government functions. From the FDA and drug safety to the Centers for Disease Control or NIH, or any of the other programs that are out there, we're looking at a half a year -- that's roughly $240 billion. And we're looking at cutting that 25 percent right away, okay, during the remainder of this year.
ORNSTEINThe shock value of that has ripple effects in the economy. And Goldman Sachs produced, for its own purposes, a report that said, if you do this now -- even though the dollar amounts, as Matt said, are relatively tiny for this huge federal budget, but most of that money is in mandatory spending -- if you do that, it's going to have a serious deleterious effect on a now weakened economy, possibly costing 800,000 jobs and taking a couple of points off of our GDP in the course of the next couple of quarters and stuff.
REHMBut supporters of the Republican plan say the Goldman Sachs projection is just wrong. Matt.
KIBBEWell, I'm not really inclined to go with anything Goldman Sachs says right now, to be honest with you. I think that we need to get out of the way. And the biggest challenge to the American economy today is that the debt and the deficit are discouraging job creation, and the rules of the game are not clear moving forward. So why shouldn't the government tighten its belt like everybody else?
BENDAVIDBut it's also true that this Republican -- what they're calling the long-term plan, which just means to the end of this fiscal year...
BENDAVID...probably isn't going to go into effect because the Democrats won't accept it. And so there's this enormous gap -- about $57 billion -- that the two sides have to close in order to reach any kind of a spending plan for the end of the year. And, I think, getting the short-term plan out of the way just almost highlights the bigger problems you're going to have when all these Republican-proposed cuts and things like the EPA and, you know, NIH and border security and so forth, are on the table. And the Democrats are taking the position that much less should be cut. And how the two sides can reach any sort of agreement in the next two weeks, I think, is going to be really something to watch.
REHMAnd who's going to get the blame, Dan Glickman, if they can't reach agreement?
GLICKMANWell, I think there's -- each set -- each side is setting itself up to have the other guy being blamed for this kind of situation because we have a kind of not in my backyard mentality in this country. We certainly -- in 1995, President Clinton deftly moved to deal with this issue in a way that the Republicans got the blame when they tried to shut down government. I think the conservative media machine is much more effective than it was 16 years ago. And I think that the -- quite frankly, the Democratic PR machine is much less effective than it was 16 years ago.
GLICKMANSo, you know, to the extent that that makes a difference, I'd say that the Democrats probably are in a slightly more vulnerable situation. But I would, again, say that this all cries out, apart from who gets the blame -- and I'm not sure, to the American people, it matters who gets the blame because a lot of them just want their government to function, their country to be strong.
REHMTwo-thirds of Americans have said exactly that.
GLICKMANYeah, you know. Just -- but it does require -- and our political system makes it difficult because we have separation of powers. We're not like a parliamentary system where you have the executive and the Congress are the same. So there's an inherent conflict that's existing anyway in our political system, which is exacerbated by strong polarized ideological views. And it just cries out for leadership at both the presidential and the -- and the Congressional level to sit down and try to work through these issues. So that's what our political system is all about in this country.
KIBBEI do think it does cry out for leadership. And you have to -- I mean, trying to be as objective as possible, you have to look at this current budget debate. And the Senate Democrats have not put any ideas on the table. The president has not put any serious deficit reductions on the table, and he is the chief executive. And, from that perspective, we look at Republicans as our only hope to inject some modicum of fiscal responsibility into this debate. But, I think, the American people are looking at this and saying, this is why we're untrustworthy of our federal government because it is so dysfunctional and so just irresponsible with the American people's money.
BENDAVIDI think if there's a government shutdown -- and I think both sides are trying to avoid it -- Republicans tend to presumptively get the blame, I think, from voters because they're so critical and sometimes hostile toward government. And, I think, that's one reason that they're very worried about it. However, Democrats can definitely overplay their hand. And if they appear to be secretly wanting a shutdown so Republicans get the blame or if they seem to be so adamant about avoiding spending cuts that the government therefore has to shut down, then they could get the blame. And so, right now, you are seeing this very intense jockeying on both sides, each party trying to suggest that the other one is secretly rooting for a shutdown.
REHMNaftali, what do the protests in Wisconsin, Ohio, Indiana tell us?
BENDAVIDWell, I think they tell us, in part, that there's a tremendous amount of passion on both sides. And one of the things that's interesting is, if you talk to people -- say, Senate Democrats and House Republicans -- you don't just get these sort of calm differences of opinion. It seems like they're on different planets, to tell you the truth. I mean, the Democrats will sort of say, look, you know, sure we got to cut the deficit, but we got to be careful. We have to be smart about this. And House Republicans, in particular, speak about this crisis and this emergency and nothing we do in terms of cuts could possibly be as painful as the pain that would be caused from letting the debt continue.
BENDAVIDAnd so that's why I wonder, even though both sides are trying to avoid a shutdown, whether one might happen simply because, right now, they're talking past each other to such a great degree.
REHMI don't quite understand how the American people can sort this out. It seems very, very divided. It seems very contradictory. Norm Ornstein.
ORNSTEINWell, the American people are contradictory in all of this as well. They want to see real discipline here. But when -- as we've seen with multiple surveys -- you get right down to specifics, the only area of federal spending that voters are willing to cut is foreign aid. And their sense of the foreign aid budget is completely outside reality. They believe the foreign aid budget is 25 percent of federal spending, and they want to cut it to 10 percent when it's basically 1 percent. So we're going to -- the one part of this debate that is going to be, I think, particularly interesting, and if Republicans continue a strategy, which they now are talking about, which is we're going to do this every couple of weeks.
ORNSTEINInstead of trying to take on 61 billion in one chunk, we'll do 4 billion for two weeks and then another 4 billion so that, if the government shuts down, it's President Obama deciding to shut down the government over a small sum of money. But that also is going to get us down to specific programs. And then we're going to see, if the dispute is over, whether we're going to cut the heart out of NIH. The Rand Paul budget would have cut the FDA budget by 61 percent in one year, meaning no new drugs going through, no inspection of safety of pharmaceutical plants around the world, all kinds of things that, I think, most Americans would say, what, are you crazy?
ORNSTEINWe're talking about 20 percent cuts in border security at a time when the same people are saying we need to massively increase our border security. So if we start to get to specifics, the American people themselves are have -- are going to have to decide what it is they really want to cut when it's not always fraud and abuse.
KIBBEI think fiscal conservatives need to frame this debate in the broader context because it is true when you get into specifics. There's always a constituency for every dollar that the federal government spends. But if you'll look at this in terms of the facts, we're spending $140 billion to expand the debt every month. And we're getting very close -- we're at 67 percent of debt to GDP ratio right now. Under President Obama's budget, it goes up to 77 percent, which is dangerously close to where you're seeing these European countries default. That's the bottom line. This is unconscionable to put this kind of burden on our children and grandchildren. It's stopping economic recovery. And, if we don't do something about it, the specifics don't matter anymore.
REHMAll right. And it's time to open the phones, 800-433-8850. First to David, who's in St. Louis, Mo. Good morning, to you.
DAVIDGood morning. Thanks, Diane. A couple of quick points and a question. One, I don't think that the Republicans really came to the table in good faith. They only picked out things that were important to Democrats -- kind of like a hit list -- which they knew had no chance of passing. If they were serious about it, they would have made a much bigger effort to put things that were important to Republicans on the table. And if it was -- if the deficit really was that important, then additional revenue in the form of tax increases is just going to have to be considered.
DAVIDSo it must not be that important. Also, I would like to know, under which administration did we get the bulk of the now national debt? My understanding is that 12 of the 14 trillion of our current national debt was done under Republican administrations, deficit spending and the interest accrued from that.
REHMAll right. Thanks for your call. A Republican hit list, Matt.
KIBBETo be honest with you, I haven't seen any substantial Republican proposals, other than Rand Paul's proposal. And Paul Ryan, the now House chairman of the Budget Committee, has put together something that, I think, quite honestly, openly looks at everything. I have -- I wish -- I would love to see Republicans target Democratic programs, and I would love Democrats to put a list of cuts that target Republican programs because then we could have a rational conversation about what to cut.
REHMWhat about tax increases?
KIBBEWell, even John Maynard Keynes would say that now would be the worst possible time to raise taxes. And, I think, when you look at how to balance the budget and rein in the debt over the long run, there's two pieces. There's fiscal restrain on the spending side, and then there's economic growth that drives revenue. And the gap in revenue today is primarily driven by the poor state of the economy. So there is occasion where raising taxes, just from an economic point of view, could actually exacerbate the budget.
REHMMatt Kibbe, he's been called one of the masterminds of Tea Party politics. You're listening to "The Diane Rehm Show." And the third question our caller post, under which administrations did we achieve 12 of the $14 trillion of debt we now have?
BENDAVIDYou know, I don't know the exact percentage -- I'll be honest with you. But it's true that Democrats point out that a lot of this started under the Bush administration, and that, you know, we had a surplus in the Clinton years and that the wars in Afghanistan and Iraq, as well as tax cuts under President Bush, had a lot to do with the current deficit, as well as President Obama's policies. And so both sides kind of blame the other for, you know -- for creating this and, you know -- and that's a lot of the debate that's going on.
ORNSTEINBut -- just a second, a couple of points relating to what Matt said. One is that Keynes would not want to raise taxes. Now, he wouldn't want to cut spending now either in a fragile economy right now. But, in the larger sense, if you look at Paul Ryan's plan, which does look at everything on the spending side and makes dramatic changes in Medicare and Medicaid and Social Security, moving Medicare to basically vouchers and Social Security with the substantial amount of private accounts -- I mean, big changes.
ORNSTEINThat does not balance the budget until 2060, and it adds 62 trillion to the debt in the meantime. You cannot do this without revenues, and both parties are really responsible on that front. The Democrats' fiscal responsibility is, let's make permanent tax cuts that add three trillion to the debt over the next 10 years, and the Republicans say, no, let's make it four trillion. So it doesn't work.
GLICKMANWell, you know, one thing that's interesting to me is we have fought two wars in Afghanistan and Iraq, somewhere between $2 and $3 billion a week, so that's somewhere between $100 and $150 billion a year. And we haven't recognized that we have to pay for that. So, you know, I mean, that's not general spending to promote the general welfare. That's essential spending to protect America's national security. Historically, we've paid for wars. We did it in World War II. We issued bonds. We paid it back.
GLICKMANAnd so, you know, at some extent, the debt is caused by the fact that not wanting to deal with the realities of how you should run government in a prudent way. But I would just make the point that both the president's commission, Erskine Bowles-Allan Simpson and the bipartisan policy commission, which is Alice Rivlin and Pete Domenici, came up with a bipartisan plan, supported from people from the left, like Sen. Tom Coburn and from right -- from the right, like Sen. Tom Coburn and the left, like Sen. Dick Durbin.
GLICKMANAnd what I mean is -- all ideological spectrum -- to cut spending on domestic entitlements and to raise revenues both. And the problem we've had to date is a lot of people don't trust that all of this will be done, to, in fact, get the deficit down. And that has to do with a lack of trust in government. But it can be done -- what we're talking about doing -- and it can be done sensitively and fairly without massive dislocation to our economy.
REHMMatt Kibbe, how does the Tea Party group feel about the Bowles-Simpson commission?
KIBBEI think that we like the fact that sacred cows were put on the table, that entitlements were definitely part of the mix. But the real secret of that commission is that it dramatically increases the revenue base to levels that actually exceed where we were at the height of World War II, so that the ultimate solution, from their point of view, is to expand the revenue base and to permanently grow the size of government. And, if you understand how politics works and you understand public choice economics, understand that if we give the government more money, it will spend that, plus some. That's the problem we have.
KIBBESo simply increasing revenue right now in no way guarantees that we're not going to get in this same mix, and you have this ratchet effect, where government gets bigger and bigger and the private economy gets crowded up.
REHMWhat about the issue, though, of raising the age for Social Security, cutbacks in Medicaid, Medicare, that sort of thing?
KIBBEI like the approach of Paul Ryan. And, remember, that's -- the numbers that aren't on the books right now -- if you look at Social Security and Medicare, that's 100 trillion in unfunded liabilities over the lifetime of these programs, and we got to deal with that in the short run and the long run.
REHMMatt Kibbe, president and CEO of FreedomWorks. We'll take a short break. When we come back, more of your comments, your e-mail. I look forward to hearing from you.
REHMAnd welcome back. Here is an e-mail from Greg in Baltimore who says, "What is Tea Party's evidence that the deficit is causing an economic crisis?"
KIBBEWell, every dollar that the government spends is a dollar that the private economy doesn't spend. And the problem with deficit spending, unlike direct exchange through tax and through tax policy, is that it has the pernicious effect of the debt burden. And, more importantly, when we're monetizing the debt and degrading the dollar like we are today, that corrupts the signals in the market, and you get things like housing bubbles.
REHMIs there any response to that, Norm?
ORNSTEINWell, I think you could look back and -- the idea that -- and if you take that to his logical extension, eliminate government and we would have an absolutely booming economy, one of the interesting things to look at is, if you look at the states, you have states that have very expansive social spending that are in deep, deep trouble -- Illinois, California. Then you can look at a state like Texas, extraordinarily low taxes, the most limited safety net, limited government you could imagine. They're in an even deeper fiscal hole than many, many other states. So, you know, the states are not the only issue here, of course, that are affected by the larger economy.
ORNSTEINAnd you could make a serious argument about whether housing bubbles are caused by government action or by a private sector that finds all kinds of ways to make money without expanding the economy. But, you know, there are real issues here about where the money ought to go.
GLICKMANWell, I mean, look, you have -- there's spending, and then there's spending. They're spending on things that protect the public safety, like air traffic controllers to make sure our airplanes work for the system. Or they're spending on roads, sewers, water systems, the things that keep our economy functioning. Or there are things that are spending on investments things, like, for example, education, higher education loans for kids to go to college. So -- and that spending, I would say, is stimulative. It's capital spending. It's investment-type spending. And you can't just say with one broad brush that all spending detracts from the total economy.
REHMHere is a message on Facebook from Ken who says, "They're not having a real budget discussion on the Hill. This is political death race 2012, fighting for power and position, trying to knock each other off, cross the finish line first. Republicans are pushing for additional cuts equal to drops in a bucket of the overall budget in order to satisfy the Tea Party. Democrats have done the political calculus and think they should hold their ground on these drops in the bucket. Who's going to win?" Naftali.
BENDAVIDWell, I mean, I think that the writer is true as far it goes. I mean, I think people on the Hill are -- they believe in what they're doing, but they also are very much aware of the politics. And I don't think we can reasonably expect to be politics -- to politics not to be in politics. I mean, of course, they're both -- they're all looking for an edge. I mean, I think the end game here is going to be very interesting because it's true that there may ultimately be a deal between the 57 billion that the Republicans want to cut and the much smaller amount -- whatever the Democrats come up with. But then both sides are going to have to enforce that among their own rank and file.
BENDAVIDAnd one of the interesting questions for me is whether John Boehner can enforce any kind of a deal on the 87 freshmen and the other conservatives in the House caucus and whether or not any deal sticks. And, if not, then I think there's going to be more trouble.
KIBBEWell, I think if we all agree that the goal is serious deficit reduction and we set some overall spending goals, I think, Tea Partiers are willing to consider all pass to get there. But you have to set that goal first, and I haven't seen either party really step up to the plate and say, this is where we need to get and now let's have a debate about how to get there.
REHMAll right. Another question from a caller in Grand Rapids, Mich. Good morning, John.
JOHNYes. One of your callers actually touched on this or your guest, rather, touched on this earlier. But when is the discussion going to turn to much bigger budget problem and that is the military spending right now, which far outweighs the discretionary spending that we're talking about right now? That's a big issue. I know it's politically difficult and -- but the people are saying that the debt is a threat to national security. Certainly, then, this spending for national security -- maybe should be re-looked at.
BENDAVIDI mean, I think that's a really good question. And I think it's what the earlier caller might have been referring to when he described the Republican plan is a series of hit -- you know, Democratic hit list because, while there are some military cuts in this plan, they're relatively small compared to some of the cuts elsewhere. Some Republicans have started talking about the need to cut military spending, and there was a very interesting vote during this debate to cut $450 million out of a second jet engine for a military plane. It was very close to Speaker Boehner's district. And it showed, I think, that, particularly, you know, in certain kinds of spending that even the Pentagon doesn't want, there's something of an appetite there.
BENDAVIDBut I think that is going to have to be the next step in the debate. And I think what's going to happen is the Senate Democrats will probably come back with a proposal that cuts military spending a lot more than the House Republican plan does. And so that's going to be in the -- it hasn't been so far very much in the mix, but I think it's about to be.
REHMAll right. To Terrell, Texas. Good morning, Roger.
ROGERHi. Yes. I have several points. I'll try to make them as concise as possible. First off, the earlier statement regarding our dear president and our -- his lack of leadership on this financial situation and the budget plan. When the Republicans came in and specifically stated that their number one goal of jobs above the economy, above the deficit, was to make him a one-time president, I would have been very disappointed in him had he actually put out anything bold. It would have been the height of political naiveté to have done so and essentially setting himself up to be shot down no matter what he put forward.
ROGERSecond point is that we've actually been in this financial situation before. And the last time we were, we got out of it by engaging in massive deficit spending and a absolute mandatory jobs program that was called WWII and the draft. And it actually led to the greatest prosperity we've ever seen. And, last point, I just found it very interesting that one of your guests almost accidentally made a very true statement when he said we are untrustworthy of our government in that as one of our founding fathers said the -- in a democracy, you get the government you deserve. Thank you much, and I'll take comments off the air.
REHMThank you. Who wants to take that first point about Republican statements regarding President Obama that their first priority was to get him out of office?
BENDAVIDWell, I think that was a comment that Mitch McConnell made that he's referring to in particular, but there have been other similar comments. I guess, in my heart, I don't think one side is being political and the other side isn't, that one side is being purist and the other side is being cowardly. I just think both sides have principles they believe in, but they're very, very much aware of political maneuvering. And it seems to me -- I could be wrong, but it seems to me that President Obama has made a calculation that he is going to let the Republicans go out there first.
BENDAVIDThey came to office. They swept to power in an election in which they criticized him mercilessly. They bashed Democratic priorities. And, I think, he's sort of taking the approach, fine, let's see what you guys offer. It's easy to sit and criticize, but once you put something on the table and then, I'll respond rather than being in a position of being vulnerable myself, you can criticize that. But I think both sides are maneuvering for political advantage.
GLICKMANThere's a larger point here, and I think the caller is right. I've been in Washington for 41 years, Diane, and I haven't seen it this corrosive and dysfunctional. Because we are deep into the permanent campaign, each side believes that the country would go down the toilet if the other stayed in power for any length of time. Working with the other side can reduce your chances of taking power, and it makes it very hard to come together. The danger in the short run is, as we focus on the small share of the budget, that itself will not solve the problem. It becomes a battle, not over cutting spending, but over other ideological issues.
ORNSTEINAnd the more you get into that, the harder it then becomes to work together on things like entitlement programs. One of the problems we have now with Medicare is that the Republican desire to kill the health reform plan led them to adopt something called the Medicare Bill of Rights two years ago, which was, we're going to protect every dime of Medicare spending from now into perpetuity against these heathen Democrats who want to cut it and hurt the elderly.
ORNSTEINWell, if they move to accomplish that goal, it now makes it even harder to come together with some of the cuts in the growth of Medicare that actually were built into the Affordable Health Act.
ORNSTEINSo we need presidential leadership, actually, in this case. And it would have been nice if we'd had it in the State of the Union message, where he'd said at least, let's move that bipartisan plan from the commission into legislation, and then we can talk about those larger issues. And I'm sad that he didn't do it.
KIBBEWell, you go back and look at the birth of the Tea Party. It started out of frustration with Republican expansion of Medicare, with earmarks, with overspending, with bailouts. That was all boiling long before President Obama was sworn into office, and he had run on fiscal responsibility and transparency. And we feel like we didn't get that from him virtually from day one. So, I think, from the Tea Party perspective, we're not looking for either Republicans or Democrats to solve our problem. We're looking for the American people to insist that politics clean itself up.
REHMIt's interesting. We have an e-mail from Dennis in Mt. Holly, Va., who says, "Please ask Matt Kibbe how the current government deficit is holding back business investment and jobs when business is sitting on the largest cash hoard in decades, as well as near zero interest rates. What more would business need to start investing in jobs? With respect to protecting our children, how does cutting school funding and children's health care help children?"
KIBBEWell, the deficit is a manifestation of a larger problem. The government is spending too much money, and it is monetizing that with easy interest policies and loose money policies. So, literally, if you're sitting there with capital, you don't know what the rules of the game are. We have temporary tax policy. We have interest rates that could change at any minute based on the next political panic. And it is quite rational for the business community to sit on the sideline saying, we're going to wait until our government sorts out what the rules of the game are.
REHMInteresting. Andy in Charlotte, N.C., says, "Dick Cheney said during the Reagan administration that deficits don't matter."
GLICKMANWell, I mean, I think there is a division in the Republican Party between people who put a real premium on closing the deficit, even if that means increasing taxes and revenues, and those who feel like, under no circumstances should revenues be increased. And they say, you know, the problem isn't that we, you know, spend too little (unintelligible) we tax too much. And I think it used to be much more even division. I think, right now, the part of the Republican Party that believes that taxes should never be raised under any circumstances, nor revenues ever increased, is growing. And the real deficit hawk portion of the Republican Party is shrinking. And I think that's a very important part of a dynamic that we're seeing.
GLICKMANYou know, I'm one of those who believes that there is an appropriate role for government in certain areas. I've talked about investments, America's role in the world, but, like any corporation or any institution, you have to have a business plan, a strategic plan. You've got to have what you can do, you can do well, and then you build towards that. And, I think, what's happened over the last several years is that in the minds of the American people, they're not quite sure what government ought to be doing.
GLICKMANAnd it's unfortunate because, in order to be a competitive force in the world with the Chinese or the Europeans, we have to have the strongest educational system, the strongest infrastructure, the strongest science and technology system, as well as a strong military force overseas. But we haven't allocated our resources to what our objectives ought to be. And I think that that has confused the American people and has allowed people who do not like government at all to just do a broad sight at everything that it does. I think that's unfortunate.
REHMFormer secretary of agriculture, Dan Glickman. You're listening to "The Diane Rehm Show." Let's go now to Waterford, Conn. Good morning, John. You're on the air.
JOHNI'm very concerned with the deficit, and I'm afraid that the news blurs the deficit with debt. I just want to -- I'm concerned that -- as I understand it, the deficit is the rate over debt, so it's like saying if I can't pay my mortgage, I go out and buy a second and a third home, taking on even more debt. But I have two questions. One is -- I'm not sure -- I'm not clear on who actually holds our debt. If it's in bonds, is some of that held by U.S. citizens and in retirement accounts? And my second questions is, when people talk about the amount of our deficit, is -- that's how much we're borrowing -- but if -- I'm not sure where it's being held, but is -- does that include how much we're paying back, how many bonds that we buy back at the same time?
REHMAll right. Thanks for your call. Norm.
ORNSTEINWell, the caller, John, is right in a couple of ways. We often use these terms interchangeably, and they're different terms. The deficit is basically on an annual basis, the difference between what we take in in tax revenues and what we spend out. And getting to the latter point, a significant portion of that -- and it's a growing portion, and it's one of the reasons why Matt, as he mentioned earlier -- is you get your overall debt level higher as a share of our GDP interest rates go up, and that means the interest on your debt goes up.
ORNSTEINAnd, of course, if you add to it every year with more deficits, then that adds to your overall debt burden, which is the cumulative deficits. Now, it's worth making that distinction now because, over the last couple of years, where we've had a focus on spending out of control, a good portion of that is because we've been in recession. And keep in mind that a part of what the federal government has to do if you believe at all in economics one, when you hit a difficult time, you're going to do deficit spending. States can't. Almost all states have balanced budget amendments, and in difficult economic times, they're in enormous fiscal drag. The federal government counters that with a little bit more. That adds to the short-term deficits. It doesn't have to add to the long-term debt beyond that. That's part of our debate right now.
GLICKMANI would point out that about half of our debt is held by folks overseas, and half of the half is held by the Chinese. So this is not an abstract problem.
REHMMatt Kibbe, if the U.S. were out of both Afghanistan and Iraq, how would that affect your concerns about the growing debt?
KIBBEWell, Dick Armey and I wrote an op-ed in The Wall Street Journal, where we suggested absolutely that defense should be on the table, and those are massive expenditures. I don't know what the total number is, but these are wars that have been going on for over 10 years, and that's a serious part of the solution. But I got to say, as the commander in chief, President Obama needs to ensure that when he has troops in harm's way, that they have the resources they need to defend themselves and execute their conduct. But why aren't we talking about that as part of this puzzle?
REHMAre you saying you think we ought to get out now because of the debt?
KIBBEFreedomWorks does not take a position on foreign policy, and that's a foreign policy question. But what we have said is that every Federal agency would benefit forth with some physical restraint.
REHMMatt Kibbe, president and CEO of FreedomWorks, Dan Glickman, former secretary of agriculture. Naftali Bendavid, the Wall Street Journal, and Norman Ornstein of the American Enterprise Institute. Very interesting, gentlemen. Thank you all so much.
REHMThanks for listening, all. I'm Diane Rehm.
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