The White House says Congress has until July 22nd to come to an agreement on a plan to cut the deficit. One trillion dollars in spending cuts have been outlined, but Republicans and Democrats remain sharply divided on whether some tax increases should also be included. The Senate has agreed to cancel a planned recess next week to allow more time for negotiations: Join us for an update on the negotiation process and how proposed deficit reduction measures could affect the overall U.S. economy.

Guests

  • David Stockman former Congressman from Michigan, R budget director during the Reagan administration
  • Alexis Simendinger White House correspondent, RealClearPolitics
  • David Wessel economics editor, The Wall Street Journal; author "In Fed We Trust"
  • Chris Cillizza author of The Fix, a Washington Post politics blog, and managing editor of PostPolitics.com.

Transcript

  • 10:06:54

    MS. DIANE REHMThanks for joining us. I'm Diane Rehm. The Senate resumes work this week on deficit negotiations. The administration and congressional democrats have agreed to a series of spending cuts, but remain at loggerheads with republicans over whether measures that would raise government revenues can be included.

  • 10:07:22

    MS. DIANE REHMJoining me to talk about what's at stake for both parties and the country, David Wessel, he's economics editor for The Wall Street Journal, Alexis Simendinger, she is White House correspondent for RealClearPolitics, and Chris Cillizza, author of The Fix, that's a Washington Post politics blog, and managing editor of postpolitics.com.

  • 10:07:53

    MS. DIANE REHMI look forward to hearing your thoughts on this ongoing wrangle. Give us a call on 800-433-8850. Send us your e-mail to drshow@wamu.org. Join us on Facebook or send us a tweet. Good morning to all of you.

  • 10:08:17

    MS. ALEXIS SIMENDINGERGood morning, Diane.

  • 10:08:17

    MR. DAVID STOCKMANGood morning, Diane.

  • 10:08:17

    MR. DAVID WESSELGood morning, Diane.

  • 10:08:17

    MR. CHRIS CILLIZZAGood morning, Diane.

  • 10:08:18

    REHMHow frustrated are you, Chris Cillizza, with this is ongoing problem.

  • 10:08:23

    CILLIZZAWell, I tried to be a sunny optimist, then I'm -- we're just coming off of a three-day nice, long weekend so let's not be too cynical on a Tuesday -- nice Tuesday morning in Washington. But, yeah, look, we have known this for a long time, Diane. The simple fact is the government, as it is currently structured in Washington, is basically not working right. The American people census, you look at any poll, the institutions, Congress is broadly unpopular. People think that country is headed off in the wrong direction.

  • 10:08:58

    CILLIZZAThey don't particularly like either party. They don't particularly like the president of the United States, though he's slightly more popular than Congress is, certainly. So everyone knows what the problems are, which is this government. The way we set up politics, at least, is not a way in which you should set them up if you wanna solve big problems. We talked about grand bargains.

  • 10:09:24

    CILLIZZAWe talked about both sides making compromises when, in fact, you know, listen to John McCain, the 2008 presidential nominee and senator from Arizona, on Sunday, he essentially said the 2010 elections, which republicans won many seats, affirmed that republicans on this matter, on the budget, on tax increases and spending cuts, do not want compromise.

  • 10:09:47

    CILLIZZASo, you know, we're in some ways back to square one. And, you know, we're looking at a July 22 or August 2, depending on how you define this deadline, for us defaulting on our loan. So we're up against it.

  • 10:09:56

    REHMSo up against it. David Wessel, where do we go from here? You did have John McCain, John Cornyn over the weekend say that they would be willing to compromise just a little bit. What were the compromises? How far might they take us?

  • 10:10:18

    WESSELWell, look, I think the -- it's like union negotiations and we're down to the wire. And whether Chris is right about the dysfunction of our government or not, we've been at junctures like this before where only a deadline forces the Congress to move off their preferred positions to something that's second best. And so we're gonna see a couple of weeks of seeing how far they'll move. The -- what Sen. Cornyn and Sen. McCain are saying, I think, is very hard for ordinary people to understand.

  • 10:10:50

    WESSELThey're against tax increases, but they're okay with revenue increases, which is a little hard to understand when it's the same money flowing out of your wallet.

  • 10:10:59

    REHMThen explain.

  • 10:11:00

    WESSELSo what the republicans are digging in their heels about is they do not wanna raise the tax rates, the marginal tax rate, the rate on which you pay the government for each additional dollar of income. And the president campaigned on raising tax rates for upper-income people, and the republicans are saying, we won't do that.

  • 10:11:19

    WESSELBut Sen. McCain, Sen. Cornyn, a number of other republicans who are part of this so-called Gang of Six in the Senate have said, okay. We don't wanna raise tax rates, but there may be other ways in which we can raise revenue by doing away with tax credits exemptions or deductions. And the eventual compromise is, if there is one, will involve this.

  • 10:11:41

    WESSELThe loggerheads they're at right now is the republicans have said, we've got the democrats to agree to about a trillion dollars worth of spending cuts, why should we have to compromise now on revenues? And the Democrats are saying, we've agreed to a trillion dollars worth of spending cuts. We are not gonna keep bargaining over spending cuts unless you guys are willing to put revenue on the table.

  • 10:12:04

    REHMSo how far apart are the two sides?

  • 10:12:08

    WESSELIt seems about $400 billion over 10 years. The president has signaled that he will go along with this deficit reduction agreement with about a trillion dollars worth of spending cuts over a decade if the republicans agree to about $400 billion worth of revenue increases over that same period.

  • 10:12:25

    REHMAnd, Alexis, how important or how artificial is this deadline, first August 2, now July 22?

  • 10:12:36

    SIMENDINGERWell, I think it's real. You know, there isn't any economist or a treasury official who is trying to suggest that there are tons more tools in a kitbag at the treasury to re-jigger accounts, which they've been doing for months now. They've talked about doing this after May and that, you know, this is how we got to the August 2 deadline, which is re-jiggering the accounts. So treasury is saying, this is it. This is it, boys and girls. We're not gonna be able to stretch this farther.

  • 10:13:04

    SIMENDINGERAnd then, when you walk back from the August 2 date, you say, in Washington, let's say there's a framework deal. How long does it take to write the legislative language? How long does it take for their congressional budget office to score it so that all of the lawmakers agree to what their -- the effect that they want. And then, how long will it take to get through two chambers, the House and the Senate, and then go to the president?

  • 10:13:27

    SIMENDINGERSo that's how the White House is saying, look, after mid-July, July 22, we're really hitting the skids here. So they are trying to signal, we don't have that many weeks left and they've been saying that since May. But they're saying, we're really down to it.

  • 10:13:42

    REHMAlexis Simendinger, she is White House correspondent for RealClearPolitics. Do join us, 800-433-8850. And now, is it true, David Wessel, that some congressional republicans are saying they won't act on raising the debt limit without holding votes in the House and the Senate on a balanced budget amendment for the Constitution?

  • 10:14:15

    WESSELWell, it's true that some of them are saying that, and it wouldn't be that all that hard to put up a balanced budget amendment as long as it doesn't pass. But, look, I think what the difficulty here is there is no agreement possible that all the republicans will support or that all the democrats will support. There is no agreement I can get through a congress with only republican or only democratic votes.

  • 10:14:42

    WESSELSo there will be people on the left and the right who vote against whatever there is. And what this is about is finding something that gets enough republicans and enough democrats to support it so it can get through Congress.

  • 10:14:53

    REHMHow many are we talking about, Chris?

  • 10:14:55

    CILLIZZAWell, you know, Diane, I think -- first of all, David's point is exactly the right one, and I think that's what makes it difficult for John Boehner and Mitch McConnell, frankly, to, you know, craft such so-called grand bargain...

  • 10:15:08

    REHMBecause?

  • 10:15:09

    CILLIZZAWell, look at the House -- let's take the House, for example. We saw 80-plus new freshmen elected in 2010, one of the largest classes in history. Many of them beat incumbent democrats, but many of them won open seats in conservative places as well. Lots and lots of those people took a pledge to never raise taxes, the infamous Grover Norquist Americans for Tax Reform pledge. Two hundred and thirty House members, mostly republicans, not all, but 230 House members have signed that pledge, which is no tax increases, no revenue increases at all.

  • 10:15:44

    CILLIZZAThe question for John Boehner is, let's say he signs off on a deal with President Obama that -- something like David outlined. Will his conference vote for it? And can he, as the leader of the Republican Party in the House, survive a compromise that is passed, not with a majority of republican votes, but a majority democratic votes, that he gets a certain number, 75, 80 republicans and a bunch of democrats? That's what I think his nightmare scenario is, what he doesn't wanna do.

  • 10:16:13

    CILLIZZAOf course, you know, when you play a game of chicken, there's always the chance that neither of you swerve the car. I still don't think that's the likely outcome because the blame game is too uncertain. Any poll suggests people blame both sides equally. Neither one -- when I say both sides, President Obama and congressional republicans. I don't think either one want that, but in some ways, it's the immovable force and the inanimate object at the moment.

  • 10:16:40

    REHMDavid Wessel, explain the revenue generators the democrats are calling for, give us a sense of those, and would you, in fact, call them tax hikes?

  • 10:16:58

    WESSELI would call them tax hikes. We're playing a name game in Washington now, and this will be like one of those peace negotiations where each side declares victory, but defines victory differently. What they're talking about -- the president has made a big deal about some relatively small corporate tax breaks, corporate jets, for oil and gas drilling, for the way businesses account for inventories. If you take away those breaks, those companies will pay more taxes.

  • 10:17:29

    WESSELOn the individual side, he's talking about changing the way deductions and credits are calculated. If you're an upper-income taxpayer, you get -- for every dollar you get to deduct, you save 35 cents on taxes. If you're a lower-income taxpayer, you'll only get to save 15 cents on your taxes. So he's got a scheme he proposed in his budget that would make it more, even in his view. This would be a tax increase in my book, but so be it.

  • 10:17:57

    REHMAnd how much of a dent would they make in what's left to be negotiated?

  • 10:18:04

    WESSELI think now it's become largely symbolic. The president has thrown in the towel. It's not gonna be 50 percent tax increases and 50 percent spending cuts. It's gonna be relatively small share of tax increases, but he needs to get some tax increases to show his democratic base that he won something in this negotiation, otherwise the whole thing will be a tax spending, Medicare, Medicaid discretionary spending, whatever and that will make the republicans feel they've won.

  • 10:18:32

    REHMDavid Wessel, economics editor of The Wall Street Journal and author of the book titled "In Fed We Trust." Short break and we'll be right back.

  • 10:20:03

    REHMWelcome back. Joining us now from Aspen, Colorado, David Stockman, former republican congressman from Michigan and budget director during the Reagan administration. Good morning to you.

  • 10:20:20

    STOCKMANGood morning.

  • 10:20:21

    REHMDavid, how far can we get with budget cuts alone?

  • 10:20:27

    STOCKMANWell, I, you know, the crisis is so severe that I think we have to recognize that we have an utterly failed fiscal policy, that we have both parties in denial about the huge magnitude of this problem, and that we're really rolling the dice if we think there's indefinite patience in the global bond market for us to continue to issue 6 billion of new debt day in and day out, which is what we're doing now and what we're stuck on.

  • 10:21:00

    STOCKMANSo to tell you the bottom line, the republican position of no tax increases is absurd. This cannot possibly be addressed in a meaningful, effective way without major tax increases that must begin now and will continue for years or the entire decade into the future. At the same time, the democrats are way off base in saying that Social Security is off the table, a 700-billion program, that means-tested entitlements are off the table, Medicaid and food stamps and so forth, 600 billion, and that whatever cuts they're talking about are gonna be strung out over the next 10 or 15 years.

  • 10:21:47

    STOCKMANThat really is just phony-baloney. We need to have a reduction in the amount of red ink that's flowing right now, next month, next quarter, next year. And the only way you can do that is big reform of entitlements, means-testing, large revenue increases and a massive retrenchment of a defense budget that makes no sense at $800 billion in the world that we live in today. This is an obsolete approach to our security, and we need to have huge cutbacks.

  • 10:22:27

    STOCKMANAnd it's very disappointing that President Obama has done nothing serious about moving us to a post-Cold War, post, you know, 9/11 defense posture, which we desperately need.

  • 10:22:43

    REHMSo from your point of view, I gather you would say that neither raising revenues nor cutting spending is likely to be helpful to the economy.

  • 10:23:01

    STOCKMANI think we have to face the fact that we've used up our balance sheet. We now have 14 trillion of debt. We just can't keep adding at this rate. And, therefore, as we reverse course and begin to cut spending and raise taxes, yes, that will not help the economy. On the other hand, we don't have any choice. We don't have a divine right to an unlimited national credit card. And so we had a 30-year party, a 30-year boom, a lot of it supported by, you know, debt increases in both the public and private sectors that can't be sustained.

  • 10:23:39

    STOCKMANSo now, as we attempt to begin to deal with the aftermath of this, the choices are not going to be that pleasant. We're going to have austerity, and that will actually slow down the recovery of the economy. But that can't be an excuse for doing nothing, which is what the Keynesians say and what the supply-siders in the Republican Party say. Wait 'til it gets better. But we can't, you know, outwait this because, you know, our balance sheet is too far gone.

  • 10:24:10

    REHMAll right. So David Wessel is here with me. David, what about Social Security, Medicare, Medicaid and the defense budget? David Stockman seems to be saying you can't do anything meaningful without those on the table.

  • 10:24:30

    WESSELWell, he's right because that's where the money is. I think we know that the defense budget, Medicare, the program for the elderly, are definitely on the table. The question is how much of a slice they're willing to take out of those budgets. I'm not sure about Medicaid. Social Security, both parties are reluctant to touch now, and we know why that is because of the power of the myth that Franklin Roosevelt created about the way Social Security is funded and the politicians' fear of the elderly. But I think that there's -- I agree with most of what David Stockman said.

  • 10:25:10

    WESSELBut there is a view out there that says we can have some appetizers if we give up our main course and dessert. And that view is that we can keep the markets happy -- after all, the U.S. is managing to borrow an incredible amount of money at low interest rates now. If we put in place a credible plan that republicans and democrats vote for, that will reduce the deficit over the next decade. And it has to be credible and that's a tough challenge, even if it doesn't cut spending or raise taxes right now when the economy is weak.

  • 10:25:46

    REHMDavid Stockman.

  • 10:25:48

    STOCKMANWell, I disagree with that because I think we've had an illusion of stability in the bond market that's totally unreal. In other words, this market has been entirely manipulated by the Fed to this huge QE2 and then, before that, QE1 bond buying program and the other central banks of the world. As a matter of fact, in the last two years, nearly 100 percent of this massive issuance of federal debt has been absorbed by either the Fed or other central banks around the world.

  • 10:26:19

    STOCKMANThe problem is that's ending. The Chinese got a rip-roaring inflation. They're not going to be pegging their currency as aggressively. That means they'll be buying less, if any, bonds. We know where Japan is. The Fed is out. QE2 is done, thank heavens. I think it was a disaster. And I don't believe they're gonna be allowed to go back in by the dollar currency markets. It will have a disaster if they do.

  • 10:26:44

    STOCKMANSo now, finally, after years of a false, suppressed interest rate on the bond, we're gonna have a real two-way market. The mighty bid of the central banks will be gone. And in that market, the price is gonna be set by the likes of PIMCO and Phil Gross and others who think with 2.5 percent inflation over the last 10 years, the 3 percent yield on the 10-year is totally inadequate to compensate for the risk.

  • 10:27:14

    STOCKMANSo I think interest rates are gonna be tested. And we're rolling the dice if, in a naked market, as opposed to a Fed-manipulated market, we don't take into account the fact that if they ever start selling off the bond and a panic starts in the bond market -- it's Katy, bar the door, you can't stop it -- interest rates will soar and we'll then be in a real crisis also.

  • 10:27:38

    REHMOkay. So let me ask you, David Stockman, if all things were politically possible, what could the administration do to give this economy the very best chance for a strong and quick recovery?

  • 10:28:01

    STOCKMANWell, I think Obama could do two things if he were inclined. One, he could call in all the chiefs of the armed forces, the new defense secretary, the whole national security establishment and say, I want a five-year plan to take down the spending by 20 percent, by hundreds of billions a year. That can be done, it should be done and we don't have the luxury of avoiding it. Second, he could say that we can't afford the rate -- the Bush tax cuts, none of them, not for the rich, not for the somewhat rich and not for the middle class either.

  • 10:28:36

    STOCKMANAnd if anybody tries to extend them after this expiration at the end of 2012, I'll veto it. If he did those two things, massive defense demobilization and an ironclad pledge to veto any extension to Bush tax cuts, then we would begin to turn the corner on this fiscal disaster and we could dig our way out of the problem. I don't expect him to do that. You know, he is weak. And when push comes to shove, the republicans will roll in again and we're going to be in one crisis after another. I call it the movable fiscal crisis. It's gonna go on for months, years and perhaps the next decade.

  • 10:29:18

    REHMBut cutting the armed forces by 20 percent, taking out those Bush tax cuts, when we're talking about creating jobs, wouldn't it be terrible not only for the military, but for all other employers?

  • 10:29:39

    STOCKMANWell, you know, you can say that, but the fact is we're running a $6 billion a day deficit, 1.5 trillion a year. You can't say that we have an infinite balance sheet and we can just keep piling on the debt. We don't have that luxury. I think it's a dangerous illusion that I blame the Fed for. Below zero interest rates are a signal to politicians that debt can be accumulated indefinitely in unlimited amounts. That is a terrible economic illusion.

  • 10:30:17

    STOCKMANAnd the sooner we get to more reasonable interest rates and recognize that we have to pay our bills, the better we're gonna be, even if it causes some real economic hardship in the transition.

  • 10:30:30

    REHMTell me what you think Ronald Reagan would do in this situation.

  • 10:30:38

    STOCKMANI, you know, it's pretty hard because today is so different from what existed in 1980. In 1980, we had a clean balance sheet as a nation. Total debt was 160 percent of GDP. Today, it is 360 percent, not even in the same universe. I think the circumstances that we face would be so foreign, so alien to anything that Ronald Reagan thought about at the time that it's impossible to know what he would -- how he would respond.

  • 10:31:11

    REHMDo you share the qualms that many people have over the consequences of not raising the debt ceiling?

  • 10:31:22

    STOCKMANNo, I don't. I think that is -- the debt ceiling is a red herring. It is the usual propaganda, the August 2 drop-dead date, usual propaganda out of Treasury and the Wall Street bond dealers. The Wall Street bond dealers, 19 of them have been -- are sitting on a couple hundred billion of inventory of bonds. They're scared to death that there might be some dislocation in the market. They would take losses.

  • 10:31:47

    STOCKMANBut frankly, they have been netting money now for years and years, buying the bonds one day from the Treasury, selling them back to the Fed the next day. So the fact is we have $200 billion a month of revenue coming in now even in the current circumstance. The interest on the debt is 20 billion a month. If push comes to shove, they can pay the interest. No default will happen. Sixty billion a month is the cost of Social Security. If push comes to shove, they can pay that, too.

  • 10:32:16

    STOCKMANThe rest of it has to go down into some kind of privatization. If we have to cut -- if we have to delay paying defense contractors, I say so be it. If we have to delay paying Medicare carriers, insurance companies and scooter chair manufacturers, I say so be it. We need to force a crisis. We need to force a dislocation in the bond markets, drive up interest rates so Congress and the White House finally wake up to this very -- this problem and take meaningful action.

  • 10:32:50

    STOCKMANWhat they're talking about in the Biden committee is just a lot of, you know, usual flimflam and sham that these cuts are not real, they've over 10 years, they can't be enforced, that Congress has 100 ways to get around them. And this is, unfortunately, the state of play that we're really facing today.

  • 10:33:13

    REHMAll right. David Stockman, he is former budget director during the Reagan administration. And you're listening to "The Diane Rehm Show." Alexis, do you wanna comment?

  • 10:33:28

    SIMENDINGERWell, I thought it was very interesting, but I think we're talking about two different things here. Let's come back to the discussion we're having. To his credit, Mr. Stockman is trying to think long term, whatever you agree or disagree about his prescriptions. But in this case, we're talking about a short-range crisis, meaning, what are we gonna do before August 2? And Mr. Stockman is talking about something longer term.

  • 10:33:53

    SIMENDINGERThis discussion in Washington may have originally started as being a long-term discussion about what do we need to do about deficit and spending, but that's not what we're doing now. We're mixing two different things. One is the debt ceiling has to do with our obligations in the past. He may be right in this concept that it's a red herring to merge the two things, the idea of future deficit reduction with our obligations from the past. But that's already happened.

  • 10:34:18

    SIMENDINGERThe president has conceded the fact that there will be a linkage between an agreement going forward and paying our obligations by raising the debt ceiling going forward, at least through 2012.

  • 10:34:29

    REHMDavid Stockman, do you wanna comment?

  • 10:34:32

    STOCKMANWell, yeah. I agree the two issues are separate. I just don't agree that there's a hard and fast August 2 deadline. I think we have weeks and weeks, even months, if necessary. And in that period of time -- not, you know, two or three weeks that we have now, but two or three months -- it should be possible for a serious White House and a serious Congress to get down to a serious plan to address this deficit problem right now before they raise the debt ceiling again. That's all I'm saying.

  • 10:35:05

    STOCKMANTo simply raise the debt ceiling by seven or 800 billion, which they're talking about now to tide us through November, that's just kicking the can a very short stroke. We'll be back there in November. And if they do it again, we'll be there over and over and over. So the debt ceiling is a real reminder that our fiscal policy is utterly failed, that we're on an unsustainable track, and they have to come up with a meaningful plan that starts now and extends for the long term as soon as possible.

  • 10:35:34

    REHMAll right. Chris Cillizza.

  • 10:35:37

    CILLIZZAWell, I would never fight Mr. Stockman in terms of economic knowledge, but I would say that the politics of this -- David Wessel made this point earlier, that we are -- we tend to be a deadline-driven government. I always compare it to a college student writing a term paper. You know when it's due when the syllabus comes out. You tend to write it the night before. Like it or not, August 2 has become what many people believe to be, in the political context -- I'm not arguing the economics of this -- in the political context, a drop-dead deadline.

  • 10:36:11

    CILLIZZAPresident Obama, in his press conference last week, in which he was decidedly combative with House republicans, was asked, is this a real deadline or not. He said, this is a real deadline. There are real consequences to passing this deadline. So he is setting it up and framing it as August 2 is when this gets decided one way -- well, prior to August 2, but by August 2, this is when it gets decided. I would just throw one other thing out there, Diane, that I think makes it difficult, the politics of this.

  • 10:36:40

    CILLIZZAThe Washington Post did a poll last month in the middle of June. Seventy-one percent of people said that they thought not raising the debt ceiling would have serious economic consequences, but almost four in 10 republicans said they didn't want the debt ceiling raised under any circumstances. One in three independents said they didn't want the debt ceiling raised under any circumstances.

  • 10:37:01

    CILLIZZAObviously, those two thoughts are decidedly contradictory. I think some of that is because people just don't understand the details of economic policy and what this actually means, but it shows you the difficulty if you were a politician looking at those numbers and trying to wind your way through what's a very difficult political landscape at the moment.

  • 10:37:22

    REHMAll right. We're going to take a short break here. And when we come back -- David Stockman, I hope you can stay with us for questions from our listeners -- we'll take your calls, your e-mail and your postings on Facebook and your tweets.

  • 10:40:03

    REHMAnd sad to say, David Stockman did have to leave us. He thanked us for the opportunity to be on now. David Wessel, I know you had some comments you want to make.

  • 10:40:18

    WESSELI got two things I wanna say about what Mr. Stockman said. The first is, let's be clear, Mr. Stockman thinks we have to create a crisis in the bond market in order for Congress to do the right thing. President Obama and Treasury Secretary Tim Geithner and House Speaker John Boehner and Majority Leader Harry Reid in the Senate think it's their job to avoid just that crisis. And that's the difference, frankly, between being in office and being in Aspen. The second thing is that I think Mr. Stockman made it seem a little too easy.

  • 10:40:51

    WESSELWhat happens if they don't raise the debt ceiling? He said they can pay the interest, they can pay Social Security, and then we'll worry about the rest. Well, you might be on the receiving end of the rest. You might be a defense contractor who has to pay wages. You might be a hospital who's taking care of Medicare and Medicaid people. You might be somebody who's in the middle of building a road that's federally funded. You might be a school system counting on federal funds.

  • 10:41:12

    WESSELIt's that government takes in more -- less money every day than it spends, and it has to borrow the difference. If it can't borrow, it's not gonna meet all its obligations. That is not a good situation to be in, even if it produces some responsible fiscal policy in the long run.

  • 10:41:32

    REHMAll right. Let's go to Marblehead, Mass. Good morning, Bruce.

  • 10:41:39

    BRUCEGood morning. I'll try to be as brief as possible, and wade through the fog and the confusion. I appreciate all the panel's insights, but they don't help me as an American at all any more than the endless polls. The game of chicken will go on being played because that's what politics is all about. Meanwhile, we stand helplessly by and watch it being played.

  • 10:42:05

    BRUCEI think it's ironic -- and I'd like some comment, although it may be farfetched -- that this is all happening in the Civil War commemorative year, the 1850s, with dysfunctional in the government for an irrepressible conflict, and part of it was economic. It wasn't just about slavery in two ways of life. I think we're seeing something of the same thing.

  • 10:42:31

    WESSELWell, I mean, I think the comparison between slavery, even the economic impact of it, and our current debt ceiling and financial budget crisis is overblown, frankly. That said, yes, I think the caller's frustration is something that is reflected. He said he -- the endless polls, so I won't -- I will purposely not cite a poll to cite his frustration, but let me just say it is a feeling that is widely held in the country. It is what is getting people to talk about the idea of a third party candidate in 2012, someone who runs a problem solver.

  • 10:43:06

    WESSELBut, Diane, I would say, everyone likes the idea of compromise except when compromise involves cutting or reducing or taking away something that they personally value. And then, compromise is of less value, and that's always the problem. The grand compromise is always something people are attracted to. The nitty-gritty that goes into that compromise is where we get into the difficulties.

  • 10:43:32

    REHMAnd here is an e-mail from Lisa on that subject, who says, "Major Garrett, who now writes for National Journal, was asked who would be blamed if the deficit was not raised. He said President Obama would be blamed if he continued to refuse to compromise." Lisa goes on to say, "I don't get it. As I see it, the president and democrats have already compromised by coming up with $2 trillion in cuts."

  • 10:44:10

    REHM"I don't see Republicans willing to compromise because they refused to raise any revenues, which would be their part at the negotiation's compromise." Alexis.

  • 10:44:25

    SIMENDINGERWell, in some ways, Lisa is right that the president has already conceded what democrats would think of as a lot of territory in that he didn't demand a clean debt ceiling increase, which his predecessors have done before. He conceded that the two ideas would be linked, the idea of deficit reduction going forward to somehow offset whatever the increase borrowing would be to pay past obligations. I think she's heightening the -- our attention to the divisions in the party.

  • 10:44:54

    SIMENDINGERSo for instance, the republicans are very hopeful that this will drive wedges in the democrats, that they will be upset with any kind of compromises that touch republican program -- democratic programs that they're very keen to preserve, Medicare being one or support programs, et cetera. And interestingly enough, the whole discussion of taxes and revenue increases has brought republicans together more than driven them apart. That's a problem politically for the president.

  • 10:45:24

    SIMENDINGERHis news conference, he hoped, would elevate his discussion, the bully pulpit argument to the public and give him more clout to argue against what republicans are interested in doing. In some ways, you could say that that news conference brought republicans more united, more together on the discussion.

  • 10:45:43

    REHMWhy?

  • 10:45:44

    SIMENDINGERBecause the concept of not raising taxes, that the ideological fault line that that presents brings republicans together more cohesively just by the nature of the discussion.

  • 10:45:58

    REHMDavid Wessel.

  • 10:45:59

    WESSELSo the republicans who are promoting this view would say it, now that they were elected to shrink government, and if you don't take an opportunity like this to shrink government, when would you ever do it? And they believe that one of the obstacles to a faster recovery and economic growth is to get government out of the way. They talk a lot about removing the uncertainty about future tax increases. So they feel very strongly that, A, this is what the people elected them to do, and, B, that this would make the economy better.

  • 10:46:34

    WESSELIt's not the conventional economic textbook view. I'm not saying I agree with that, but I think it's important to remember that it's not all about posturing. They do have some principles here. One of the promises they have, though, if we're really gonna lick the deficit by just doing on the spending side, then you have to do much deeper spending cuts than even they are willing to vote for. And so that's the tension, I think, that they are facing.

  • 10:47:00

    REHMAnd on that point, here's an e-mail from Rich in Raleigh, N.C., really going to what you're saying, David. He asks, "What's the difference between taking $1 from the poor through a benefit cut, and taking $1 from the rich through a tax increase? From the point of the U.S. Treasury, it's the same dollar, but in republican economics, the benefit cut is fine, the tax increase, a mortal sin. The Ryan Medicare plan is essentially a $6,000 per year tax on seniors."

  • 10:47:45

    WESSELI think that the e-mailer makes a very good point, that from the viewpoint of the Treasury, a dollar saved and a dollar raised in taxes are the same. And from the viewpoint of a Keynesian economist who's looking at the short term ups and downs of the economy, they have similar effects. What republicans are saying, I think, is twofold. One, we cannot raise taxes sufficiently to cover the promises we've made to pay benefits.

  • 10:48:14

    WESSELSo, in -- if we're ever gonna agree to tax increases, we have to make sure that we have some credible restraints on long-term spending for benefits, particularly for health benefits. And the second thing republicans would say is that tax increases remove the incentive for people to invest and to make money, and that would have a deleterious effect on the economy.

  • 10:48:38

    WESSELThey do actually say that a dollar saved in benefit cuts does less harm to the economy than a dollar raised in -- by raising tax rates. I'm not associating myself with that view, but that is what they say.

  • 10:48:52

    REHMAlexis.

  • 10:48:53

    SIMENDINGERWell, this -- I think this discussion underscores why we're not going to get to the mega deficit reduction deal by July 22nd. So these ideological schisms between the two parties are not going to be resolved in terms of our deficit and spending programs for the long term by July 22nd. So let's back up and just say that still is going to be a discussion for future years. And the president's ambition is that that will be a discussion post-2012. There are many republicans who would like it just as easily to be post-2012.

  • 10:49:32

    SIMENDINGERBut each side would like to score some political points. That is just the naked truth of Washington right now that we can't argue it away. So the discussion then in this week, in the coming week, is what political incentives could each side rally around and find, as Chris was suggesting, just enough votes to move it through the House in the Senate, and then the republicans who said that they would never vote for tax increase can then go and campaign that they did not.

  • 10:49:57

    SIMENDINGERThey voted against it, they opposed it, et cetera. And so then we could raise the debt ceiling for the 75th time and get passed the 2012 election. That is where we're headed.

  • 10:50:09

    REHMAll right. To Margate, Fla. Good morning, Henry.

  • 10:50:14

    HENRYDiane, I am in the process of selling everything I own and moving to Australia because I am tired of the hypocrisy of the party that raised the debt limit in the time during the Bush administration without calling for deficit reduction and the spinelessness of Barack Obama and the democrats. Now, I lived through 500 percent interest rate in Sweden. I will not do that again in this country, okay?

  • 10:50:46

    HENRYNow, a pox on the democrats and the republicans for driving me and my children out of our country because this is what is coming to -- going to happen to this country. These people do not understand economics. Thank you very much.

  • 10:51:00

    REHMThank you.

  • 10:51:01

    CILLIZZAWell, it's hard to argue with his passion. You know, look, Henry -- I think Henry touches on, again, you certainly heard it in his voice, Diane. There is tremendous frustration, you know? I initially thought, well, he's upset with republicans and they're not compromising, but no, he also is upset with Barack Obama, in his word, not mine, the spinelessness of democrats. You know, Alexis mentioned that -- and she's 100 percent right -- that it's so unlikely that this grand bargain, this big thing is very likely to happen. Every day that we get closer to whether it's a real deadline or false deadline, that August 2nd, deadline, the less likely it is we get some sort of grand bargain.

  • 10:51:38

    CILLIZZAThe one thing I would say is Barack Obama ran in 2008 in large part on getting the government to be able to do big things again. That he was someone uniquely, because of his experiences in life, who could make people who did not want to work together work together. When he ran, the cynics -- and I'll probably put myself in there -- who had seen this political process plot said, it's gonna be, you know, there's a such intractable problems in terms of compromise. But he did run on that.

  • 10:52:08

    CILLIZZAAnd the question is, if you can't get a grand bargain, if you are kicking the can down the road a year, two years, does it, in some meaningful way, undermine Barack Obama's fundamental brand, which is bringing big change and positive change to government, getting government to work for people again? If you have frustrations like Henry just voiced, I think the likely result is a pox on both your houses broadly. But remember, there's only one incumbent president on the ballot in 2012.

  • 10:52:36

    REHMChris Cillizza of Washington Post politics blog and managing editor of PostPolitics.com. And you're listening to "The Diane Rehm Show." And now to Fairport, N.Y. Good morning, Joyce.

  • 10:52:55

    JOYCEGood morning. I want to add one thing to this. One of the things that concerns me very greatly as I hear people in admiration of the discipline of the Republican Party for staying on message, well, I think that the word should be dictatorial because these people were elected to serve the good of the country. When they see that there are real crisis, you can go and argue all you want to ideologically.

  • 10:53:18

    JOYCEBut we're talking about real people with real problems, as the impassioned man said. In terms of the Social Security, people have paid into it all their life with the promises that the government would protect it. Instead, they have willy-nilly taken out of that from whenever they wanted to.

  • 10:53:33

    JOYCEThere was a time -- when Clinton left, there was a surplus. And I believe it was Dale Bumpers, but somebody from the South, who urged them to really go and make safe things like Medicare and Social Security. Instead, we had massive tax cuts. And I have one final thing that I wanted to say. The republicans have vowed, when we talk about principles of the Republican Party, to oppose anything that Obama says.

  • 10:53:58

    JOYCEAnd yet, people want to blame Obama because he didn't bring the country together. You have a Republican Party that is vowing to be sure that we'll not be done in exercising the discipline that makes it happen, and keeping on message is hurting this country.

  • 10:54:13

    REHMDavid Wessel.

  • 10:54:15

    WESSELWell, let's see. It's -- she has a clear point of view and there's a logic to what she says. I'm less alarmed about the ideological conflict. I believe the ideological conflict actually represents a disagreement among the American people. I don't think it's 90/10 one way or the other. I think people actually disagree about what to happen now. Some of it is based on their preferences. Some of it is based on -- in economics that may not be very sophisticated.

  • 10:54:47

    WESSELI think the difficulty is that we don't seem to have the leadership in Washington now to say we have to do things that none of us want to do if we're gonna move the country forward. And I worry that this focus on deficits and debt reduction is being seen in the country, the way this caller and some of the others did, as a sign that both parties and our political elites in general aren't able to do what needs to be done to get the economy moving again.

  • 10:55:13

    REHMBut here's an e-mail from Mariel in Baltimore, who says, "When any of us normal folks have a cash flow problem, more debt than income to pay for it, we usually take two approaches. We try and cut expenses, don't go out as much, and we raise income by working longer hours or getting a second job. I don't see how the republicans can possibly expect to balance the budget without an increase in revenues."

  • 10:55:54

    SIMENDINGERWell, you know, you can argue what they could possibly expect to see, but as David was trying to explain, there's a lot of effort to think about ways to think of the revenue side and not call it attacks. Actually, that's sort of where we are at this point. And as David was suggesting, we're arguing about what the president calls a balanced package to get the debt ceiling raised that, as David was suggesting, is not 50/50.

  • 10:56:20

    SIMENDINGERWe're talking about a relatively smaller minority of the entire package that is supposed to be on the revenue side. So, you know, the democrats are gonna argue their -- they have come as far as they can come.

  • 10:56:31

    REHMAll right. Quick question, one word answer. Will the August 2 deadline be met?

  • 10:56:39

    WESSELYes.

  • 10:56:40

    SIMENDINGERYes.

  • 10:56:42

    CILLIZZAI don't disagree with David Wessel on the economy.

  • 10:56:44

    REHMAll right. And that's Chris Cillizza of The Washington Post, Alexis Simendinger of RealClearPolitics, David Wessel of The Wall Street Journal. I hope you're right. I'd like to see this argument over and done with. Thanks for listening, all. I'm Diane Rehm.

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