Clash of ideologies over US deficit

Business Times - 23 Feb 2011

Clash of ideologies over US deficit

An agreement needs to be reached by March 4; if not, the federal government will run out of money and will shut down


EGYPTIAN supporters of trade union protesters in Wisconsin have been calling Ian's Pizza in Madison, the state capital, to donate pizzas to the public employees who have been demonstrating against Republican Governor Scott Walker's plan to eliminate collective bargaining rights.

That seems to fit into the political narrative drawn these days by Democratic activists who depict the protesting union workers as part of growing public backlash a la Tahrir Square against Republican-led pressure in state capitals and in Washington to slash the state and federal deficits on the back of financially distressed middle class workers.

'Wisconsin's Tunisia Moment' and 'Is it Madison or Cairo?' have been two of the recent headlines of posts in liberal blogs reporting on the angry protesters, many of whom have been camped out at the Madison legislature for several days, and who have consumed more than 500 pizzas delivered by Ian's Pizza and donated by the supporters in Egypt as well as in other countries around the world and all the states in the union.

The mass protests in Madison and the emergence of what could be described as the political left's version of the Tea Party, may be a sign that notwithstanding the good news from Washington and Wall Street about accelerating economic recovery, members of the nation's middle class are continuing to be impacted by the Great Recession, and that this economic anguish could be igniting another populist movement.

Indeed, while bankers on Wall Street, who have been the recipients of one of the largest government- backed bailouts in history, are once again being rewarded with huge bonuses, general unemployment is not showing any signs of returning to its more normal rate.

At the same time, many state governments such as that of Wisconsin have accumulated massive debts and are facing fiscal crises that are forcing major cuts in the services that states provide (education; police services; garbage collection) and in the salaries of those who provide these services (teachers; policemen; garbage collectors).

And unlike Wall Street bankers, state governments and local counties and those who work for them are not going to be bailed out by Washington anytime soon.

In fact, states, unlike households, businesses, and cities, are not even allowed by law to seek protection in federal bankruptcy. That means that state governments can't operate with a deficit and that the only way they could get out from under the crushing debt burden is by cutting services that go to residents - who themselves have yet to get out from under their own crushing debts.

This kind of fiscal crisis, that for instance has brought California to the verge of bankruptcy, also poses a major threat to the solvency of the pension funds that states are expected to use in order to support hundreds of thousands of retired public workers.

The fiscal crisis at the state level comes at a time when the US federal government is drowning in its own gigantic debt and is being forced to find ways to slash the federal deficits; making these fiscal emergencies a very intriguing political reality in Washington and around the country.

The Tea-Party - the political right's populist movement - helped the Republican Party to score big in last year's mid-term elections - regaining control of the House of Representatives in Washington while securing legislative majorities in, and capturing, the governorships in several states, including in Wisconsin.

These impressive Republican wins have strengthened the political hands of deficit hawks who have become the driving force in an effort to slash government deficits in Washington and on the state level.

Hence, the Republican leadership in the House of Representatives has proposed a plan to cut the federal budget by more than US$60 billion, targeting some of the social-economic programmes favoured by the Democrats.

Republican House Speaker John Boehner threatened not to pass even a temporary government funding or 'stop-gap' measure if the Democrats, who control the Senate and the White House, don't agree to cut the funding until the end of fiscal year 2011 by US$61 billion. 'Read my lips: we're going to cut spending,' declared Mr Boehner last week.

The Democrats in the Senate and President Barack Obama are opposed to the Republican spending cuts, and since the funding for the government expires on March 4, a deal needs to be worked out by then. If not, the federal government will run out of money and will shut down unless Congress passes a short-term spending measure.

In Wisconsin, the Republican lawmakers and the governor are seeking to reduce the state's deficit by, among other things, cutting the salaries of government workers and by making it difficult for them to negotiate their salaries by passing a bill that weakens the state workers' union.

But the Republicans haven't been able to bring the proposed legislation to vote. To prevent a vote, all the Democratic lawmakers have been hiding to deny the Republicans a quorum. The unionised workers are continuing with their protests.

The Democrats believe that the Republicans are targeting the unionised workers as part of a wider effort to weaken the power of the labour unions which continue to be a major source of financial and electoral support to the Democrats and helps to counter-balance the funding that the big corporations provide to the Republicans.

The Democrats are hoping that with similar legislative battles over the budget deficits expected to be waged in many states in the coming moths, and against the backdrop of the big debate over the deficit on Capitol Hill, they could exploit the Republican strategy to mobilise the labour unions into action while turning the general public against the Republicans by portraying them as the party that wants to slash critical services to the people on Main Street - and even risk the shut down of the federal government - while continuing to cut taxes for Wall Street billionaires.

In short, the Democrats hope that they can convince the American people that they, and not the Republicans, are genuine tea partiers.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.


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