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An Alternate Approach to Avoiding the Impending Debt Ceiling Default [1]
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Date: 2023-04-30
The Debt Default Crisis Cometh . . .
I think McCarthy and the GOP are completely ready and willing to wreck the domestic/global economy for a political win. The terms of their debt reduction plan aim to dismantle much of Biden’s agenda — a negotiating position that is blatantly transparent. I don’t believe there will be any attempt on the part of the GOP at measured compromise — only threats to get what they want. Biden and the Democrats won’t be able to give in and look weak. When it happens and chaos is unleashed, finger pointing will ensue. The political strategy will be to convince the American public who was the most to blame and hope that message resonates enough to lock Congress and the Presidency in 2024. Meanwhile, everyday Americans will suffer. A resulting debt default will destroy American credibility abroad and likely decouple the U.S. dollar as the world’s reserve currency. The BRICs countries are already posturing to replace it. Putin and his cadre of hyper-nationalists are chomping at the bit for this kind of disruption to completely derail aid to Ukraine. Investors are hedging in preparation. In sum, it looks as if we have till June before a default occurs.
Things look pretty bleak.
But a default is not inevitable. Thinking pragmatically here, there is something that Biden could offer his colleagues across the aisle. Something big . . . and only something big in this moment will likely move policy and remove debt default threats. If I were Joe Biden, I would offer the GOP something that they’ve always wanted but could never secure — limited government. Joe Biden should propose removing all of the New Deal and Great Society social programs of the last century from the federal ledger along with the taxes to fund them and pass it on to the states — in exchange for removal of the debt limit requirement, criminal justice reform, immigration reform, student debt relief, and climate change legislation.
Hear me out.
Democracy’s Discontent
There are many causes of the grievance and anxiety animating both the liberal and conservative sides in U.S. politics today, but the one that is probably most relevant right now is that American’s feel a general sense of loss of empowerment or the ability to take charge of their own lives. Everything is out of control and we feel powerless to stop it. The political philosopher, Michael Sandel, in his book Democracy’s Discontent, saw the beginnings of this very clearly almost 25 years ago. Of the two concerns that lie at the heart of our democracy’s discontent, Sandel writes:
One is the fear that, individually and collectively, we are losing control of the forces that govern our lives. The other is the sense that from family to neighborhood to nation, the moral fabric of community is unraveling around us. These two fears — for the loss of self-government and the erosion of community — together define the anxiety of the age.
I would argue, and I’m certain Sandel would agree, that these dual sentiments have built the foundation on which the MAGA movement now stands. The purpose of this essay aims at providing a permanent solution to the debt default threat while at the same time providing a framework from which we can possibly restore our sense of self-government and address this problem of loss of empowerment.
Political Grievances
Take away the question of who may or may not be correct in their beliefs for a moment. If you ask any conservative about their grievances related to liberal policymaking during Democratic administrations, you’ll always hear the frustration of government regulation imposing itself on their families and their lives, or excessive taxation that is draining their earnings for programs they don’t agree with, an out-of-control national deficit and debt burden, or smug elites in Washington using their position of power to enrich themselves. If you ask any liberal about their grievances related to Republican administrations, you’ll hear how the top 1% wealthy families and corporate power is running amuck coopting Congress to reduce their taxes or eliminate pesky regulation and exacerbating income inequality or how religious conservatives are imposing an agenda on communities that do not share their values.
At the core of these arguments lies a common theme: our community is forced to value something we don’t value and it speaks to the loss of empowerment that many Americans feel when there is a change in administrations. In the past, it was just generally assumed that a principle of measured compromise would guide policy development and that any policy changes would be incremental. However, the culmination of the last 30 years of partisan polarization has caused a shift in political strategy (primarily pioneered by the GOP) away from responsible governing toward winning-at-all costs tactics (gerrymandering, voting restrictions, dropping long-standing House and Senate rules, and blocking judicial nominations, etc.) that has laid waste to that sentiment. This has forced Democrats to respond in kind in order to stay competitive but also not look weak — causing a spiral of institutional norm breaking that is destroying the already dismally low credibility of our federal government. It is my view that we cannot easily return to that state of civility and policy incrementalism at the national level. I am concerned that we are gradually headed towards a terrible reckoning that could lead to large-scale political violence and civil unrest. A default crisis would be one step along that path towards a civil breakdown. To avoid this and to restore a sense of empowerment to American communities, we need to decentralize welfare policy and economic regulation to the states. A devolution plan, if you will.
Let me be clear. What I’m suggesting is giving the states the power to determine how they want to provide for their elderly, the safety net, health-care provision, education, Social Security, business and labor regulations, etc. I am not suggesting that the states should be able to deny citizen’s rights that have already been established in law by the Constitution or by Supreme Court precedent.
A Devolution Plan
So what would this devolution plan entail? In essence, it would decouple the role of the federal government from the provision of Social Security, Medicare, Medicaid, unemployment, food stamps, and welfare provision and other federal welfare policy programs and remove the taxes they require and pass it on to the states. Business and labor regulations could possibly devolve with them. Environmental and banking regulations would need to remain at the federal level because the externalities they govern have a substantial inter-state impact. The role of the federal government would still involve trade, immigration, infrastructure, disaster relief, and defense. Some federal funding could continue and come in the form of modest block grants that would be given to states on a per capita basis giving state legislatures latitude in how they could spend that money. This devolution process would allow states a period of transition to prepare for these changes as the federal government would transfer the administration to any states willing to pick up these services. This would also entail a major reduction of the taxes associated with many of these programs to free up revenues for the states to enact them or in the case of Red-States, to give these revenues back to their taxpayers.
The Blue-State Coalition
Would this even be feasible for states to run on their own? There would likely be some progressive states that would find this arrangement problematic, particularly in small states like Vermont, who tried to institute a single payer healthcare system in their state several years back but couldn’t afford it due to problems of economy of scale. However, the Constitution does provide a remedy for this according to Article I, Section 10, Clause 3, which allows the states to form what are called compacts. These legal arrangements, in theory, require approval of Congress, but in practice are instituted all the time without it for various issues as wide-ranging as infrastructure, child-support services, environmental protection, and water-sharing agreements. A compact would be formed (with Congress’s blessing to provide legal force and to prevent overturning by Supreme Court decision) among a collection of willing Blue states wanting to band together. This compact could resolve economy of scale problems by sharing resources and member states would agree to institute similar policy programs such as a social security replacement, universal healthcare, free child-care, PreK through college free education, paid maternity leave, etc. In addition, they could agree to similar principles for a common regulatory framework. The compact could form its own governing body with delegates from each of the member states and it would need to outline how to collect revenue, how much to collect, and how to distribute resources to fund these social programs while an administrative body could be formed to oversee the functioning of this process. In sum, it would be a Blue-State coalition.
Justification
Why engage in any of this? First, because it neutralizes the conservative argument against progressive big government by using their own theory of states’ rights against them. Everything I’ve just outlined would pass muster with even the most hardened constitutionalist. Second, it would give considerable power to state legislatures and governors rather than it be concentrated in D.C. While it wouldn’t entirely do away with lobbying, it would diffuse it and allow states to regulate that kind of political activity. Third, it empowers communities to live out their values and their vision of distributive justice on their own terms. Fourth, it would provide a very interesting natural experiment that could in a sense, prove once and for all which political theory attains better outcomes. Would all of the talent and entrepreneurs flock to the low tax states while heavy-handed taxation and regulation within the Blue-State coalition collapse? Or does improved labor-market relations and considerable social investment actually contribute to decreased income inequality and greater productivity and well-being?
It’s also important to note that this kind of devolution plan may only be possible if enacted by a Democratic president. Much like Nixon, an ardent anti-communist, opening up relations with China during the 70’s or a Republican president introducing gun control or criminal justice reform. Presidents who own particular issues hold more flexibility in changing them. Conversely, presidents trying to undo the policy priorities of the opposite party energizes the defending party’s base to fight back. This was illustrated with the effective mobilization and defense of Obamacare in 2017. In short, a devolution plan has a much greater chance of succeeding if Biden introduces it and rallies the party faithful around it.
Barriers
The one thing that would rankle most progressives about this devolution plan is that it would be a clear abdication of the spirit of the New Deal and Good Society programs of the last century. It would take considerable persuasion for Biden to convince his own party and to fight off lobbying groups invested in those programs to implement this kind of structured divorce. Turning our backs on such an important legacy would be hard. Many progressive citizens would balk at the idea of this, no doubt. As a progressive, it took me a long time to warm up to this possibility.
However, I know that there are a very large number of progressive citizens (myself included) and members of Congress who have been extremely frustrated over the last several election cycles by the sheer number of citizens who voted a Republican into office that would have had no problem privatizing their Social Security, reducing Medicare benefits, eliminating food stamps or some other benefit that these same voters likely rely upon — the voting against their own interests phenomenon. Democrats have fought hard over the years to maintain those benefits for everyone. However, it is this same voting block that prevents progressive policies from being enacted at the federal level and it doesn’t look as if that will change anytime soon. Perhaps it’s time to stop fighting that battle and let these voters understand the consequences of that support.
If a devolution plan were to be enacted, it is likely that these voters would feel betrayed by Democrats who aided Republicans in stripping federal benefits and there could be political consequences for Democrats in Red-States. In turn, those same Democrats could reply that concerned citizens could still get those benefits and protections if they wanted them and would have three options as a remedy. First, simply move to a state within the Blue-State coalition. Second, vote Democrat for their state representative and senate seats and petition them to join the Blue-State coalition. Third, they can petition their representatives to enact whatever conservative policies they think can fill the gap. In short, this process isn’t intended to be punitive, but if it seems like it is, its merely shining a light on the inadequacy of conservative policies ability to address social problems.
Empowerment
A difficult challenge still exists for Joe Biden’s presidency and re-election chances. Trump has damaged the legitimacy of the electoral process and increased the possibility of more January 6th related political violence. It is certain that Trump, coupled with conservative media, and a Republican controlled House will continue to be a thorn in the Democratic/Biden agenda, stifling any progress at a national level. We are witnessing a Tea-party movement on steroids except this time fueled by a perceived stolen election, belief in a coming civil war, nativist animus, and armed and ready to fight. What’s more, Biden is not a populist — he doesn’t have a cult of personality or an unapologetic base to draw power from. Trump or his MAGA successor will continue to have this and their rhetoric will be no less vitriolic, false, or misleading.
While I don’t think a devolution plan is going to resolve all the partisan rancor nor revive our civic spirit, what it can do is disarm the Right’s most powerful talking point — liberals want to impose big government on all of us — while at the same time giving liberals the opportunity to shape their vision of distributive justice in their own communities as they see fit. We want to govern ourselves the way we prefer to be governed and we’re fine with you governing yourself the way you think you should be governed. Who could argue with that?
Liberty and Justice for All
Many of the Founders believed in the republican ideal of self-government and drew from Cicero’s political philosophy of the Roman Republic. They conceived of liberty as: citizens as equals having the opportunity to rule and in turn to be ruled within a community aimed at the common good. Part of that common good was achieving justice for its people. One could claim that a devolution plan would bring self-governance closer to the people of our states, allowing them to match their policies with their community values and to live out their vision of justice. If he were to pull this off, Liberty and Justice For All, would be a more appropriate (and much improved) Biden slogan.
If I were President Joe Biden, I would be looking for some concession that would appeal to a wide swath of the electorate to help provide a solution to end the debt limit deadlock without destroying our economy, maintain the integrity of our republic, enhance the legitimacy of government by empowering communities, and at the same time give both liberals and conservatives what they want at the same time. I think this devolution plan and Blue-State coalition would be a huge political win if coupled with other important Democratic policy goals. It could be the defining moment of a Biden presidency — particularly if he could get it done at a moment of divided government.
There are those that might argue that this kind of separation isn’t the right path and that, like Lincoln, preserving the Union, a strong federal government, and policies that benefit all Americans should be the focus moving forward rather than a structured divorce. However, if we are being honest with ourselves, I believe that in the hearts and minds of many American citizens, a divorce already exists and that this might be the only way for us to maintain our republic — if we can keep it.
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