President Barack Obama says he won’t negotiate with congressional Republicans on raising the federal debt limit. A panel joins guest host Steve Roberts to discuss the implications of the standoff for tax and spending negotiations in Washington and America’s credit rating.

Guests

  • Annie Lowrey economic policy reporter for The New York Times.
  • Norman Ornstein resident scholar at the American Enterprise Institute and co-author of "It's Even Worse Than It Looks."
  • Greg Ip U.S. economics editor for The Economist and author of "The Little Book of Economics: How the Economy Works in the Real World."

Transcript

  • 11:06:57

    MR. STEVE ROBERTSThanks so much for joining us. I'm Steve Roberts sitting in today for Diane Rehm. The battle lines have hardened over the debt ceiling debate.

  • 11:07:04

    PRESIDENT BARACK OBAMAIf Congressional Republicans refuse to pay America's bills on time, Social Security checks and veterans' benefits will be delayed. We might not be able to pay our troops or honor our contracts with small business owners. Food inspectors, air traffic controllers, specialists who track down loose nuclear materials wouldn't get their paychecks.

  • 11:07:28

    PRESIDENT BARACK OBAMAInvestors around the world will ask if the United States of America is, in fact, a safe bet. Markets could go haywire, interest rates would spike for anybody who borrows money, every homeowner with a mortgage, every student with a college loan, every small business owner who wants to grow and hire.

  • 11:07:47

    ROBERTSThat, of course, was President Obama speaking yesterday at his news conference. Joining me to discuss the president's remarks on the debt ceiling standoff is Greg Ip of The Economist, Norm Ornstein of the American Enterprise Institute and on the phone, Annie Lowrey of The New York Times. Welcome to you all.

  • 11:08:02

    MR. NORMAN ORNSTEINThanks, Steve.

  • 11:08:04

    MR. GREG IPThanks Steve.

  • 11:08:04

    ROBERTSYou can join us as always, on "The Diane Rehm Show." Give us a call at 1-800-433-8850. Our email is drshow@wamu.org and you can join us through Facebook or Twitter. And let's start Annie Lowrey with a basic primer here. The debt limit now is 16.4 trillion dollars. The latest estimate we hear is that this could be reached in the middle of February or maybe by the 1st of March. Why are we even having this discussion? What's at stake here?

  • 11:08:39

    MS. ANNIE LOWREYSo actually, funnily enough, we've actually kind of already hit the debt ceiling, but the Treasury has some tricks up its sleeve. They give it about eight weeks, give or take, to remain under the ceiling basically by shifting money from pocket to pocket.

  • 11:08:52

    MS. ANNIE LOWREYAnd the debt ceiling is, to kind of answer your question, about even just sort of simply what it is. It's sort of a redundant check on the total amount that the government can borrow. And the problem is that because we're running a deficit right now that might be either somewhere around $800 billion or a trillion dollars for the year at some point the government needs to borrow money to pay all of the bills that it's racked up.

  • 11:09:15

    MS. ANNIE LOWREYAnd so, if you don't do that, they won't be able to pay about 40 percent of them. And so the question is who doesn't get paid, right? Do you not pay back bond holders? Do you not pay back -- do you not pay social security checks? Do you not pay contractors?

  • 11:09:31

    MS. ANNIE LOWREYAnd does the Treasury even have the capacity to make those decisions if it came to it? So this would be like the mother of all recessions and financial crises if it actually came down to default, which would come sometime in mid-February or maybe March.

  • 11:09:45

    ROBERTSOkay. Now, Norm, yesterday the president reiterated his position that he will not negotiate with Republicans. He said that this is tantamount to hostage-taking, that he will not subject the country to this. He went through these negotiations in the summer of 2011. What's behind the president's newly adamant position on this issue?

  • 11:10:10

    ORNSTEINWell, one thing to keep in mind, Steve, is, we've had battles over the debt limit before, but they were charades. Everybody in the leadership knew you weren't going to challenge the full faith and credit of the United States and even when the votes were close, you'd always have, as you know, members switch positions depending on who was president.

  • 11:10:27

    ORNSTEINThe leaders had people in reserve. This last time was a genuine hostage-taking episode and we barely escaped. And I think the president believes that if you do this again, you're going to encourage the hostage-takers and it will happen again, and again and again. And what's so interesting now, Steve, is that we've had a lot of commentary out there over the last few weeks over ways the president could avoid this problem.

  • 11:10:52

    ORNSTEINOne is by using the 14th Amendment and basically saying the credit of the United States is in the Constitution. We're going to pay the bills, whatever. Another that many people have read about is this trillion-dollar coin. The president and the Treasury Department have said, no, those are not appropriate.

  • 11:11:10

    ORNSTEINHe's now operating without a net and in effect he's saying to the hostage-takers go ahead, try me on this. We're not going to let this happen and it's. It may require some upheaval but he's going to try to move it off on a different plane.

  • 11:11:24

    ROBERTSAnd it also seems, Norm, from his rhetoric both at the press conference yesterday and since the election, that he feels the situation has changed by his reelection and he refers often to the platform he ran on and talks about that dimension of the president's calculation.

  • 11:11:44

    ORNSTEINThe president won with a clear majority of the popular votes. He's the first president since Dwight Eisenhower and one of only a handful in history to have won 51 percent or more of the popular vote in an election and reelection.

  • 11:11:58

    ORNSTEINHe believes that he has more of a mandate now, but in particular that he has more leverage. And there's one other change as well from the election and he made at least an oblique reference to it. The last time in 2011 the business community was largely AWOL on this one. They stayed out of it because they were part of the tribal warfare.

  • 11:12:15

    ORNSTEINThis time, you have a business community behind the president saying you can't let this happen. And this time, you've got a more divided Republican Party so he believes that he has leverage with the public. He has leverage with important actors out there and it's time to lance the boil.

  • 11:12:33

    ROBERTSNow, Greg Ip, from the Republican point of view, Speaker Boehner has said that any deal on the debt limit there would have to be an equal number of budget cuts that equaled the amount that the debt limit was increased. Say, if the debt limit were increased a trillion dollars, which is what they would need to get through to the end of the year, there has to be a trillion dollars in cuts. Give a sense of Boehner's strategic thinking here and why and how he's taking this position.

  • 11:12:59

    IPWell, the dollar for dollar formula was what the Republicans first used in the summer of 2011 to extract the spending cuts from President Obama at the time in return for that increase in the debt ceiling. And so they believe that was successful and would like to re-employ it now.

  • 11:13:16

    IPBut as Norm was saying, the Republicans are dealing with a weaker political hand than they were back then. Not only have their numbers been depleted, not only has President Obama been reelected, but the polls are pretty clear that the public blamed Republicans more than President Obama for the financial carnage that occurred after that showdown.

  • 11:13:35

    IPAnd so if you now listen to what Speaker Boehner and Mitch McConnell, the Republican Leader in the Senate, are saying, if you listen carefully, they seem to be trying to avoid nailing themselves to a line-in-the-sand strategy of not lifting the debt ceiling.

  • 11:13:49

    IPIn an interview recently with The Wall Street Journal, for example, Speaker Boehner said that the debt ceiling may not be the best point of leverage for the Republicans. What does he mean by that? Well, there are at least two other negotiations coming up that might be better.

  • 11:14:01

    IPOne is on whether to move the sequester, which is roughly $100 billion in automatic spending cuts, which is supposed to be triggered in early March, and the other is the continuing resolution that keeps funding for roughly a third of the government in place. And without a continuation of that, the government shuts down at the end of March.

  • 11:14:17

    IPNeither of those things would be very pleasant for the government, for the public or the economy, but they would be magnitudes less disruptive than a default.

  • 11:14:25

    ROBERTSAnnie Lowrey, we've described sort of the hard-line positions on both sides. What are you hearing about potential give here? Both sides seem to be pretty dug in, but is there any flexibility on either side that you can discern?

  • 11:14:43

    LOWREYYeah, absolutely. And I think that Greg's point is a good one to make is that, you know, there was this idea that this is the big Republican lever that they were going to have over Democrats after January 1, and the fiscal cliff was over. But they're kind of realizing that they have other points of leverage.

  • 11:15:00

    LOWREYThere is the sequester and they'd like to negotiate to get rid of, especially, some of the defense cuts that are coming in the sequester. There is the continuing resolution and we've been through government shutdowns before, but we've never actually had a cash-management crisis from the debt ceiling, not for decades and decades and decades.

  • 11:15:17

    LOWREYAnd I think that there's a sense among some Republicans that it wouldn't be the best path forward and so I think that there's actually more flexibility on both sides. President Obama has said that he won't negotiate cuts, but I do think that he is willing to negotiate cuts and he has shown some willingness to kind of go back on what he's said before and actually come to the table.

  • 11:15:36

    LOWREYAnd similarly, I think, especially because some folks in Republican leadership are thinking that they don't really want to go to the mattresses over the debt ceiling, you might instead see them sort of shift focus towards the continuing resolution. I think that, you know...

  • 11:15:51

    ROBERTSExcuse me, but I want to explain what your reference said.

  • 11:15:55

    LOWREYYeah, of course.

  • 11:15:55

    ROBERTSThe continuing resolution, of course, is the mechanism that funds the government, which is one of the three pressure points Greg was talking about.

  • 11:16:00

    LOWREYYeah, exactly. And so what they would do is they would kind of force a government shutdown, which is something that's happened before and they sort of know how to do it and they know the impact and it's a really big deal. But it wouldn't be as economically destructive as a debt ceiling crisis would in the general sense.

  • 11:16:17

    ROBERTSNow, Norm, Newt Gingrich who has some experience with these things since he was the Speaker of the House in an earlier period when there was a government shutdown and the general feeling was that it was a political misstep on his part. But he called the Republican strategy a dead loser. How are you reading the politics here? Who has the upper hand?

  • 11:16:39

    ORNSTEINI think that President Obama has the upper hand, but obviously, if you push this to the limit and we do have a breach of the debt limit, everybody suffers. But I think politically Republicans are nervous about this and that's why you're seeing people like Newt Gingrich say fall back on the government shutdown again.

  • 11:16:55

    ORNSTEINYou know, I was kind of chuckling quietly while Annie was talking about this, though, because I, as you, remember well the shutdowns in 1994 and 1995 that Gingrich led and they were disastrous for Republicans. They weren't complete shutdowns, but, you know, presidents have some ability when there are no appropriations available to decide what you'll spend money on and what you won't.

  • 11:17:23

    ORNSTEINAnd back then, for example, President Clinton shut down the National Parks. There was a huge public outcry and eventually it took about three weeks, but eventually, or a little more, Republicans backed off. Now, there are some Republicans from that era who say the mistake they made was backing down and we could see a significant disruption here if this is the strategy that's used.

  • 11:17:45

    ORNSTEINBut past experience would suggest that presidents, whoever they are, have the upper hand and I'd add one other thing, which is that people who are very experienced in this from the Clinton era, include Gene Sperling, now the head of the National Economic Council, Jack Lew, who was a budget official at that time. They know how to do this and how to do it in a fashion that will put tremendous pressure on the side that triggers the shutdown.

  • 11:18:14

    ORNSTEINSo it is a stronger point of leverage for them than breaching the debt limit, but I think it's a loser of a position.

  • 11:18:21

    ROBERTSWe're going to get to your phone calls and your comments, 1-800-433-8850 is our number, drshow@wamu.org, send us your thoughts on this question for Norm Ornstein at the American Enterprise Institute, Greg Ip of The Economist and Annie Lowrey of The New York Times. I'm Steve Roberts sitting in today for Diane Rehm. We'll be back in just a minute.

  • 11:20:04

    ROBERTSWelcome back. I'm Steve Roberts sitting in today for Diane. And the subject this hour, the debt ceiling crisis. President Obama talking about it at his press conference yesterday. And Gregg Ip of the Economist is with me. Also Norm Ornstein, the American Enterprise Institute. Annie Lowrey's been covering this for the New York Times. And Greg, the president said the economy could go haywire was the word he used. And he -- we played a clip of a number of things that could go wrong. What's your best estimate of what the impact would be if in fact Congress does not act?

  • 11:20:39

    IPWell, we saw what happened in the fall of 2008 when Lehman Brothers couldn't pay its bills. So just multiply that by a factor of, let's say 20 and you kind of get the sense of what the effect on the global economy would be, that the world's most important borrower, the United States Treasury, couldn't pay its bills. Now it turns out though that default is a word that gets tossed around, but there are a variety of levels of default.

  • 11:21:01

    IPAs Annie was saying earlier, the Federal government borrows roughly 30 to 40 cents of every dollar that it spends. So if it lost the capacity to borrow it would have to start deciding what is it not going to spend money on. It's not necessarily the case that we'd immediately stop sending interest payments to the holders of the United States government's bonds. It could stop or reduce payments on Social Security checks, Medicare payments to doctors, salaries for troops, the park rangers that keep the parks open, a variety of things.

  • 11:21:29

    IPAnd so there is a possibility that the federal government could start to, in some sense, prioritize its various obligations to try and avoid an actual default on United States Treasury debt. Nonetheless the economic consequences of even that kind of a soft or technical default on noninterest obligations would still be very severe. For one thing we're talking about stopping spending equal to 6 percent of GDP. That is recessionary level austerity.

  • 11:21:55

    IPAnd for another thing, the prospect of the rest of the world of the United States government not paying any bills is a very disturbing one. You would probably see the United States credit rating downgraded once again and you would see enormous loss of confidence, I think, on the part of investors in the United States economy.

  • 11:22:11

    ROBERTSAnd Annie, Greg mentioned the downgrading of credit. This has happened before, even when they patched up this problem in the summer of 2011. The anxiety in the markets were such that the credit rating was reduced. And that's not just a question of pride. That costs the government even more money because their interest payments go up.

  • 11:22:36

    LOWREYYeah, I think that there's kind of an interesting question as to how much the United States' credit rating matters because there's so much transparency about U.S. government finances and its politics. So -- but there was this study from the government that shows that, yeah, it costs like, I think it's about $20 billion. And certainly I think that there's this sentiment that, you know, why are you going to invest in the United States if it keeps on running into these crises periodically? I think that the investor reaction could be very, very severe in the event that we got really, really close to default. It just makes people queasy.

  • 11:23:09

    LOWREYThe other thing to note is that the recovery has kind of picked up a little bit. It seems like we're going to have a pretty good quarter this quarter, but all of that could be derailed. I think even by just getting very close to having a catastrophe like this happen, let alone letting it go on for even a couple hours or a couple days or a couple weeks. I think that it hypothetically could be really bad. And the problem is, you know, there's a lot of uncertainty around it. We don't know how it would actually play out in the economy, but everybody's best guess is that it would be really, really terrible. Really terrible and probably have some kind of permanent effect on the United States' credit rating around the world.

  • 11:23:42

    ROBERTSNow, Norm, given this account that Greg and Annie have been advanced, there was a number of Republicans, House members in particular -- one Matt Salmon of Arizona, former member who's come back as a freshman. And he called this whole debate in the kind of analysis we just heard, a fake red herring, that there is a strong argument that really wouldn't be nearly so bad. Is there some argument to be made that this has been overblown?

  • 11:24:11

    ORNSTEINNo, I don't think so. But I think you have a lot of people who really believe that. Now you have some who are using it has a negotiating posture but I think it's a nonsensical argument. And, you know, as Greg was talking, think about the Hobson's choice. You pay the Chinese but you don't pay Social Security recipients or soldiers in the field. Or you pay the social security recipients and soldiers in the field and our creditors abroad who hold trillions of dollars say, this is not the last time this will happen, and it has a huge impact on credit rating around the world.

  • 11:24:47

    ORNSTEINDowngrade the U.S. a second time and at least my understanding is that a huge variety of pension funds have in their bylaws that they won't buy treasuries if you have two credit agencies that have downgraded them. So you've got huge implications here and there's no easy way out. If you've got X dollars coming in in a given day and you have X plus 40 percent obligations that particular day, you're not going to end up saying, what's the big deal. There are a few things we won't pay today.

  • 11:25:19

    ROBERTSGo ahead, Greg.

  • 11:25:20

    IPI just want to point out something that's kind of interesting. Even while people in Washington are getting very worried about the debt ceiling, you see very little sign of concern in the markets. The stock market seems to be doing its own thing. As Annie was saying, the economy actually is...

  • 11:25:31

    ROBERTSWell, hit a five-year high, right?

  • 11:25:32

    IPWell, exactly. Yeah, maybe we should have more debt ceiling showdowns. As Annie was saying, the economy seems to have a nice little bit of momentum going right now. And I think one of the reasons for that is because the markets are looking at this and they're saying, we've seen this movie before. The president and the Republicans will wrangle, they'll fight. At the last minute they'll do some kind of deal and it'll get us past the problem. And there's even some speculation that even if we went past the deadline for a week or so that that is a manageable problem, that going without payment to a certain number of government vendors for a week can be fixed. Again, provided you don't default on the debt.

  • 11:26:08

    IPSo there's a lot of question marks here. It may not necessarily be the case that all these calamitous scenarios unfold the day we stop being able to borrow. A lot of it depends on what is the dynamic going on in Washington. Are we getting closer or further away from a solution? How long does it appear to be likely to continue?

  • 11:26:25

    ROBERTSNorm, you mentioned that we've had these before. As Greg said, you know, the record generally has been -- it happened in the summer of 2011 -- at the last minute something happened. But you've covered this stuff for a long time and you've analyzed it for a long time. You seem to be saying that this time may be different.

  • 11:26:45

    ORNSTEINI think we're in a different era, Steve. You know, Tom Mann and I did this book called "It's Even Worse Than it Looks." And the main point was that in the 43 years that we've been here immersed in politics, we have never seen it this dysfunctional. And, you know, we've always said the debt limit is a farce. We're one of only a couple of countries in the world that use this device. You're paying past bills. It's subject to political manipulation.

  • 11:27:10

    ORNSTEINBut as I said, the major actors, the leaders in the process who back in an earlier era also had followers, which is a critical part of this, knew that they weren't really going to pull this to the brink. The reason that Standard and Poor's downgraded the U.S. and what they said was, yeah you received it at the 11th hour again. We've seen that many times before. But these politics are so awful that we just don't know what you lunatics might do in the future. And that I think was whether you like or dislike credit agencies -- and I don't have a lot of use for them -- that was a telling comment and I'm afraid an accurate one.

  • 11:27:50

    ORNSTEINAnd one would've hoped that a pretty decisive election would lance this boil but it doesn't seem to have done so.

  • 11:27:57

    ROBERTSAnnie Lowrey, in your coverage of this you wrote a piece over the weekend in the Times where you talked about the polarized politics Norm was just talking about, and its relationship to low economic growth. And in addition to these questions of credit rating, how does this whole debate relate to the question of economic growth and stagnant wages?

  • 11:28:25

    LOWREYSo the piece quotes this economist at Harvard named Benjamin Freidman who makes the point that, you know, we kind of think about how political paralysis in Washington and kind of the poor state of our politics impacts growth. And there's this notion that it kind of slows growth down. But there's some evidence he thinks that the slow growth itself kind of causes the political paralysis in Washington and that this is kind of a negative feedback loop.

  • 11:28:51

    LOWREYAnd the idea it sort of intuitively makes sense, right, as a pious (word?) and it's not growing very quickly. It makes politics all that more fraught because you're asking more people to sacrifice. And a lot more families are feeling the strain. And at this point the American middle class is making less money in real terms than it was 15 years ago. And even though the economy has grown considerably since then there's this sense that a lot of people are kind of falling behind. And I think that makes the politics really hard. I think it makes it hard to, for instance, tell people, well in 20 years you're going to have smaller Social Security payments or, you know, that you're going to see higher taxes.

  • 11:29:28

    LOWREYAnd so I do think that this is at least part of what's happening in Washington is that the low growth is making these choices that much more fraught. If the economy were growing faster and we knew it were going to grow faster it would make deficit reduction much, much easier. It wouldn't solve the problem but it would make it simpler to the tune of hundreds of billions of dollars even. And so I think that if we see stronger growth than we've seen in the sluggish recovery that we've had, it could make a lot of this feel a lot less burdensome for people on The Hill.

  • 11:29:58

    ROBERTSThat's an interesting perspective. Greg, pick up on this whole question. I mean, Norm says it does feel different. And I've covered these things for years and there is the track record of Congress always acting at the last minute. But the rhetoric's certainly coming out of the Republicans pushing -- from the House Republicans in particular -- of even pushing for a default. What are some of the other dimensions here that you think are at work, to help our listeners understand the underlying -- well, how we're getting to this point of such a critical confrontation?

  • 11:30:38

    IPI think it's important to appreciate that the Republican opposition to raising the debt ceiling didn't spring out of the ether. In fact, it reflects very much some important trends that have been going on in the economy, not just the stagnation of wages that Annie was talking about, but there's an overall sense that we've just been through a savage financial crisis that was brought on by excessive borrowing. We've seen in Europe several countries like Greece get into trouble because of too much borrowing. And the natural response...

  • 11:31:01

    ROBERTSRepublicans are often making that comparison...

  • 11:31:03

    IPThey are indeed, but also that is a view that resonates very well with the public. There's a lot the public is very worried about the deficit. In fact polls generally show that they don't want the debt ceiling raised. Now they may not understand that the economic fact of the matter is is that the deficits that we have now are a consequence of, not a cause of, the recession and the crisis. If the government were forced to balance its budget today the result would be severe damage to the economy and probably in the long run larger debts.

  • 11:31:34

    IPNonetheless, the Republicans feel they kind of have a political winner here on the overall theme of trying to rein in debt. And that's one reason why so many of these Republican Tea Party freshmen are actually in the House right now, is because they ran successful campaigns complaining about that. There are certainly big questions to be raised about why they would want to hold the credit worthiness of the United States hostage to this fact, but there's no doubting that they're onto a trend that bothers a lot of people, very large growing debts.

  • 11:32:01

    ROBERTSAnd Norm, pick up on this and talk about some of the political factors that are leading -- as you wrote about in your book that are leading to this.

  • 11:32:08

    ORNSTEINYeah, and I would say, Steve, that while there's a lot of talk about debt, for most of the more ardent conservatives and radicals here, it's not really about debt. They want to take a meat ax to government. If it were really about debt you wouldn't say not a dime in new revenues and you wouldn't say but defense of course, that's got to be exempt. This is about trying to cut government but frankly one of the dilemmas that they have -- and this was something else that the president mentioned in his press conference was in effect show me the money.

  • 11:32:40

    ORNSTEINAll right, Speaker Boehner. You want to cut dollar for dollar? Tell me what dollars you want to cut. And the big problem that they have politically is if you exempt defense, and we've already taken serious bites out of much of discretionary domestic spending, you've got to come up with specific plans for how you're going to take trillions of dollars out of what remains, which is Medicare, Medicaid, Social Security and veterans. And they don't want to come up with those specifics.

  • 11:33:08

    ORNSTEINSo we've got a real dilemma here that there's a -- we're having a confrontation but without specific proposals on the table that they would be willing to put out there to eliminate the confrontation.

  • 11:33:20

    ROBERTSI'm Steve Roberts and you're listening to "The Diane Rehm Show." Another factor, Norm, that you've written about often and you -- so much of the most adamant feelings and expressions of no compromise is coming from House Republicans. And I saw a recent study that said that the current house delegation, the current Republicans in the House are the most conservative that they've been in 100 years. Talk about that dimension of this picture and how that changes the dynamics.

  • 11:33:57

    ORNSTEINYeah, and it's striking actually because you have -- you know, we used to have three groups of Republicans really. You had the strong conservatives. You had people who were quite conservative in their voting records but whose instinct was to solve problems and work across party lines. And then you had a significant group of moderates, genuine moderates, centrists in their voting patterns and the like. There isn't a...

  • 11:34:21

    ROBERTS...mainly from the northeast and the Pacific Northwest.

  • 11:34:23

    ORNSTEINYeah, and the Pacific Northwest. And that's gone now. They're all gone. The last genuine moderate Republican in the House was Mike Castle, and it'll tell you a lot about our politics. The most popular politician in Delaware left the House to run for the Senate, couldn't win a Republic nomination. Christine O'Donnell beat him, 30,000 votes cast there, and then of course they lost the seat. But there's been nobody to replace him. And many of the more conservative Republicans who are problem solvers are bailing out. Steve LaTourette of Ohio, who retired this last time. Jo Ann Emerson of Missouri who decided to leave to take a trade association job.

  • 11:35:03

    ORNSTEINThe new ones coming in are a different breed. And frankly I think they're less conservative than they are more radical in their orientation. The Senate's different. And just look at the way we resolved the fiscal cliff issue. Eighty-nine senators vote for a package including 90 plus percent of the Republicans including very conservative people like Pat Toomey of Pennsylvania and Jim Inhofe of Oklahoma. It comes to the House and they couldn't get a third of their own members to support a package that was supported by most of the most conservative Republicans in the Senate.

  • 11:35:36

    ORNSTEINThe Senate's got problem solvers. The real core of the problem here in reaching a compromise across party and ideological lines is those House Republicans. And it's a huge headache for Speaker Boehner as well who's a legislature and would like to solve problems.

  • 11:35:51

    ROBERTSJust to close the loop on this point, Nate Silver in the New York Times recently did a very striking analysis about the history here. And he said in 19 -- 20 years ago, by his calculation, there were over 100 swing districts. That is districts that can legitimately be won by either party in the House of Representatives. By his calculation that has dropped to no more than about 30, 8 percent of the entire House of Representatives. And his analysis, which I think you share, is that this is one of the important questions that so many of these House Republicans have no fear of ever losing their seat except from a primary challenge from the right. And this is one of the most important dynamics.

  • 11:36:34

    ORNSTEINAnd the other -- that's absolutely the case. And it's not just redistricting, by the way. It's also just the districts have become more homogeneous. They're homogeneous echo chambers. There's also an enormous regional gap here. If you look at the votes for that fiscal cliff package, the non southern Republicans, a substantial number of them, almost the majority voted for it. The southern Republicans, who have now become the core of the Republican Party the way that it was the Democratic core 30 and 40 years ago, voted almost uniformly against.

  • 11:37:04

    ORNSTEINSouthern Republicans are all safe. They make up the critical mass of the Republican Party in the House. And on a whole host of issues they're out of sync and out of step with the rest of the country. And how you reconcile those things given these district dynamics is a real dilemma for the country.

  • 11:37:19

    ROBERTSThat's Norm Ornstein of the American Enterprise Institute. Also with me, Greg Ip of the Economist, Annie Lowery of the New York Times. We're going to come back with your calls so give us a call. We have some lines open, 1-800-433-8850, or email us at drshow@wamu.org. I'm Steve Roberts sitting in today for Diane and we're going to be right back. So stay with us.

  • 11:40:02

    ROBERTSWelcome back. I'm Steve Roberts, sitting in today for Diane. Our subject this hour, the raging national debate over the debt ceiling addressed by President Obama yesterday at his press conference, by Republicans in many statements. Our panel, Norm Ornstein of the American Enterprise Institute, Greg Ip, the economist, Annie Lowrey of the New York Times. Let me read you some emails and get your response.

  • 11:40:24

    ROBERTSThis is from Eric in Florida. "This is not a talking point to me. This is my life. If I don't get my military retirement check ON TIME I can't pay my rent. I've got a tremendous late fee and maybe eviction and loss of all my property. This is life, not an exercise on the economy. Can I sue my congressman over this?" Annie Lowrey?

  • 11:40:44

    LOWREYUnfortunately, I'm not a lawyer so I’m not sure that you could actually sue, but I think that the point is a good one. That if the United States government were to delay payments or to cancel payments somehow, that the folks that would be hurt the worst by this would probably be low-income folks that have the least buffer to kind of make payments, you know, if they don't have expected income coming in. So it would be really hard for seniors, who oftentimes don't have any income other than Social Security.

  • 11:41:14

    LOWREYAnd it would probably be pretty tough for other people that were really counting on those government payments.

  • 11:41:20

    ROBERTSGreg Ip, this is Richard in Tampa Bay, Fla. "Republican leaders in Congress are well aware of the consequences of not increasing the debt ceiling and don't want those consequences any more than anybody else. So they are rightly focusing on the president's track record of kicking the can down the road out of lack of interest in fixing the root problem, which is spending more than our resources will permit." A point you made earlier. "Republicans want to draw the line to prevent more kicking the can down the road."

  • 11:41:48

    IPWell, that's a very good point. And I think, actually, within the Republican ranks, they are thinking more in these terms. How can we pivot the narrative so that it's less about us refusing to raise the debt ceiling and more about us, yes, we'll raise the debt ceiling in return for something on spending from the president. And so I would expect to see in the next week or two Speaker Boehner start to put forward proposals that would essentially pair an increase in the debt ceiling with a variety of spending cuts. And then hoping to, basically, kick the ball into the president's court and say, here's our plan to raise the debt ceiling in a responsible way. What's your plan?

  • 11:42:22

    ROBERTSDoug writes to us, Norm Ornstein, "How does the president figure into this when the Constitution gives taxing and appropriations to the Congress? It seems Congress is ducking their responsibility."

  • 11:42:31

    ORNSTEINWell, there's some truth to that. And in fact, I accept the sentiment by many of the House Republicans that they really do want to stop kicking the can down the road. But if you look at Paul Ryan's budget, which is the budget that they've supported overwhelmingly, it adds trillions of dollars to the debt and doesn't balance the budget until the 2040s. And it does not get very specific about some of the changes that it would make in government programs. So we're not going to have a good discussion on this until we start to get more specific. And then you get to the problem with the public, which is that they want to reduce spending, waste, fraud and abuse and foreign aid.

  • 11:43:16

    ORNSTEINWhen you get to almost any specific programs they want to leave them alone. And that's a dilemma that we have here. And while Greg is right, that I do expect Speaker Boehner to put out a set of proposals tying the debt limit to spending cuts. I will be stunned if we get specifics in any fashion on those spending cuts because you start to cut into public safety, homeland security or the programs like Social Security and Medicare that people view as vital.

  • 11:43:49

    ROBERTSAnd another factor here, we talked a lot about the pressure on Speaker Boehner from conservative Republicans to cut spending and reduce the size of government, as you point out. But there is also pressure on President Obama from the left not to touch entitlement programs like Medicare and Social Security. At various times the president, in negotiations, has seemed to raise the possibility of doing that, raising the retirement or the eligibility age for Medicare or changing the way cost of living is calculated with Social Security, which has triggered a lot of outrage on the left.

  • 11:44:23

    ORNSTEINAnd he's put some specifics forward and, you know, as recently as a week ago made it clear again that those were things that were on the table in a negotiation. But, you're right. And of course, as we know, Steve, second term presidents almost always have headaches from their own bases. If you fend off the base in your first term, you don't get a primary challenge, it greatly enhances your likelihood of reelection. After you've won reelection you don't have an excuse anymore for compromising, as far as they're concerned.

  • 11:44:53

    ORNSTEINNow, it's their turn. And we're seeing a hardening of the lines in the environmental movement, by people who don't want to touch Social Security or Medicare in any fashion. And it's a headache if you get an agreement here that does restrain the growth of entitlements, it's not clear you're going to get the Democratic votes you need, much less the Republican ones.

  • 11:45:13

    ROBERTSLet's turn to some of our callers. Don, in Miami, Fla., welcome. You're on "The Diane Rehm Show," Don.

  • 11:45:19

    DONGreetings. I taught American history for ten years. And I've been observing this president now for over four years. And I think this debt ceiling is a deception invented by the Congress to leverage themselves for political gain. And that it only exists because of ignorance in the American public about basic economics and this debt ceiling in particular. I think the best person to inform the American people about the exploitation of this ignorance by the Republican party is the president. But I believe he's been advised that if he tries to explain such things to the American people it's going to go over their heads, they're going to accuse him of being professorial and they're going to change the radio station or the TV station, tune him out. And he's not going to make any headway.

  • 11:46:29

    DONI think that, for instance, if he would explain to people that when bills are due in a family, for the…

  • 11:46:38

    ROBERTSWell, isn't this exactly what he did yesterday?

  • 11:46:41

    DONI think now, because he's been reelected…

  • 11:46:46

    ROBERTSI'm sorry. I accidentally cut Don off. Annie, respond to Don's point.

  • 11:46:52

    LOWREYSo I do think that actually we did see the president trying to do this yesterday, trying to make the point that he is obligated to tax and spend in the way that Congress has laid out. And I agree that the public is probably not very well educated about the debt ceiling, which is kind of a weird piece of arcana. It isn't actually part of the normal budgeting process. Again, it's just this kind of secondary check and sort of a bit of a historical anomaly.

  • 11:47:17

    LOWREYThe United States is actually one of very few countries that has a debt ceiling. One of the only other ones I can think of off the top of my head is Denmark. And I agree that it's hard to educate about, but I also think that Greg's point stands, that at some point the Republicans and the Democrats, I do think, want to pivot back to focusing on getting done with the long-term deficit reduction that they set out to do. And to a certain extent this is something of a distraction of that. Again, this is just a lever, it's just a mechanism to kind of force them to do the really, really difficult work of saying what's going to get cut or what taxes are going to get raised, which both of those options are unpopular. And it's very difficult for Congress to do.

  • 11:47:59

    ROBERTSLet's turn to John in Redford, Mich. John, welcome. You're on "The Diane Rehm Show."

  • 11:48:04

    JOHNWow, hi. Thank you very much. Great panel. My question is whether the president has it in his power to stop checks going out to the Republican districts where the representatives are against raising the debt limit and offset the lack of funds that way and force the Republicans to go home and face their senior citizens and doctors and convalescent homeowners about non payments in Social Security, Medicare, veterans, etcetera?

  • 11:48:39

    ROBERTSOkay. John, thanks for your call. Greg Ip?

  • 11:48:42

    IPWell, it wouldn't surprise you to learn that lawyers at the White House and the Treasury Department are spending a lot of time trying to figure out exactly what authorities and powers they have. Now, there was actually a Government Accountability Office opinion in the 1980s that was sent to Ronald Reagan that said, we actually think you do have the authority to decide in a debt ceiling situation where the payments go. It's hard to believe that the president would actually be as vindictive as to single out those districts that have Republican members. And there's the question of the ability. I mean the Treasury Department literally sends out millions of payments per month. And most of it's done automatically with no human intervention.

  • 11:49:19

    IPActually, interfering with that flow of payments in some discretionary way is very difficult to do, much less to reach the type of granular discrimination that the caller is talking about.

  • 11:49:30

    ROBERTSAnd, Annie, when asked what the Treasury is planning, one Treasury spokesman said there is no plan B. What's your reaction to that? Annie?

  • 11:49:45

    LOWREYI don't think that that's right. I do think they are absolutely planning, but they've been very, very close-mouthed about it. But we have a few hints, like the report that Greg pointed to. There's also a Treasury Inspector General report from last year that indicated that they might delay payments rather than canceling them. But the truth is they don't want to talk about this very much. And I do think that it would be really hard for them to reprogram their computers or otherwise stop payments.

  • 11:50:12

    LOWREYIn terms of actually, technically they would manage this, I think it would be really, really difficult. And again, there's not really a precedent for it and that's part of the problem.

  • 11:50:22

    ORNSTEINOne thing we know, Steve, is there'll be lawsuits filed immediately. There was a piece in the Wall Street Journal by two Republican lawyers, Rifkin and Casey, who write frequently on constitutional subjects, suggesting that it's very clear, you pay the bond holders, you pay contractual obligations, like Social Security. It's the discretionary domestic that would go first. It's not clear, but I think what is clear is the administration doesn't want to leave any out here. They avoided any of the ways of saying we'll take care of this if they are so reckless. Because then you'd turn it around and the Republicans who forced a breach in the debt limit would criticize the president for exceeding his constitutional authority.

  • 11:51:10

    ORNSTEINYou don't want to say there's a plan B because then you increase the chances that people will push this to a confrontation because they know there's a plan.

  • 11:51:18

    ROBERTSLet's turn to Melinda in Columbia, Mo. Melinda, welcome. You're on "The Diane Rehm Show."

  • 11:51:22

    MELINDAThank you. I'd like to make a point of entitlements of the corporations. The gas and oil industry have been receiving entitlements since 1918 equivalent of $4.5 billion, "B", billion a year. That's for the past 95 years. I really think that they can do without it. Agribusiness, I don't know all the other companies. They should not touch Social Security or Medicare until they eliminate those benefits. Corporations don't need them. And I think the corporations ought to butt out of our Congress. What type of country do we want? We'll have homeless children and beggars in the street…

  • 11:52:13

    ROBERTSRight.

  • 11:52:14

    MELINDA…and the elderly homeless if we start cutting all those Roosevelt programs.

  • 11:52:21

    ROBERTSThank you very much, Melinda. Greg Ip?

  • 11:52:24

    IPWell, even if you were to cut all those tax preferences for oil and gas companies and you were able to save $5 billion that way, that amounts to about one days worth of the deficit. So I think talking about corporate jets and talking about waste, fraud and abuse makes for good politics, good for talking points, but it gets nowhere actually solving the underlying problem.

  • 11:52:44

    ROBERTSI'm Steve Roberts and you're listening to "The Diane Rehm Show." Time for a couple more. Let's turn to Jim. If I can get Jim up here. Jim in Nappanee, Ind., welcome.

  • 11:53:00

    JIMWelcome. Yeah, I got a comment. Number one, you know, we borrowed all this money to get out of debt and they keep saying the banks will pay this back and everything. Where's that money at?

  • 11:53:17

    ROBERTSOkay.

  • 11:53:19

    JIMAnd number two is I've never heard of anybody borrowing themselves out of debt.

  • 11:53:29

    ROBERTSOkay. Jim, thanks for your call. Annie Lowrey?

  • 11:53:31

    LOWREYSo to the first point, it's true that the United States put huge numbers of guarantees and loans to the financial sector. A lot of that money is actually in the process of getting paid back. And, you know, take, for instance, the AIG loans, it looks like the government will actually make a little bit of money on that. So it's in the process of coming in, is maybe the way to describe it. And the government, you know, expects that revenue to come back to them.

  • 11:53:56

    LOWREYOn the second point, yeah, you know, it's really, really difficult. And I think that one of the challenges that Congress is facing is that we're going through this demographic transition where the country is getting older. More people are going to be using programs like Medicare and Social Security and they're not going to be working, which means less tax revenue. And so managing that transition is also really hard. And it's why getting healthcare costs under control is probably one of the most crucial parts to solving the long-term deficit.

  • 11:54:24

    LOWREYAnd the problem is, you know, that entitlement spending is really difficult to cut. And there's some evidence that it's squeezing out other parts of the budget. So I'm not sure that I have any good answers for this. It's a really, really difficult thing that comes down to choices. But that's really what Congress needs to tackle in the long term.

  • 11:54:41

    ROBERTSWe have a couple minutes left and I want each of you to give me your best assessment of where this goes in the next couple of weeks and how this plays out, give some guidance to our listeners. Greg?

  • 11:54:58

    IPI suspect what you'll see is a back-and-forth begin between Speaker Boehner's office, Republicans and perhaps their counterparts on the Democratic side of the aisle, as they start to put forth a variety of smaller sized proposals, initially to avoid the sequester, but possibly large enough…

  • 11:55:16

    ROBERTSThe sequester, again, this is the budget…

  • 11:55:17

    IPThe automatic spending cuts which kick in in early March, but that can be rolled into a deal on the debt ceiling. And it may require temporary small increases in the debt ceiling that last perhaps one or two months. The president has said he doesn't want to do that, but as part of a process and negotiates away past the other obstacles that could happen.

  • 11:55:35

    ROBERTSAnnie Lowrey, what's your best guess here?

  • 11:55:36

    LOWREYI agree with Greg that I think that you'll probably see some smaller legislation as opposed to big, grand legislation to kind of take care of all of the problems that are facing them. I think there's some chance that you could see the debt ceiling rolled into some other legislation with a continuing resolution.

  • 11:55:53

    ROBERTSThat, of course, the continuing resolution to pay the bills of the government, which is the third stool of this, along with the sequester and the debt ceiling.

  • 11:56:02

    LOWREYExactly.

  • 11:56:03

    ROBERTSOkay.

  • 11:56:03

    LOWREYAnd that would keep the government going. And I think that there is probably going to be a package of cuts negotiated at the end of the day and that will probably focus on Social Security.

  • 11:56:15

    ROBERTSNorm, how do you see a way out of this?

  • 11:56:17

    ORNSTEINWell, there is way out of it. You know, we have the McConnell solution, first of all, on the debt limit, which is what we used the last time, which is in effect, you turn the power over to the president, that he can veto a resolution by Congress that would breach the debt limit in effect. We only need about $1.2 trillion more in debt reduction to hit that magic $4 trillion mark where we've stabilized the debt. And it's doable, but I think we're probably going to have a whole series of confrontations and brinksmanship before we get there, over the next six months.

  • 11:56:50

    ROBERTSThat's Norm Ornstein of the American Enterprise Institute. Also with me this morning, Annie Lowrey of the New York Times, Greg Ip of The Economist. I'm Steve Roberts, sitting in today for Diane. And thanks so much for spending part of your morning with us.

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