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Minyanville Round Table: Debt Ceiling Talks Victimized by Social Mood


With social mood positioned against compromise and consensus, we're likely to see more economic hostage-taking.

Each week a number of Minyanville Professors will discuss a major economic or financial markets topic via an informal email exchange. This week's topic is the debt ceiling and the great divide between Washington and Wall Street and between Main Street and Wall Street. Participating are Peter Atwater, Conor Sen, Professor Pinch, and Kevin Depew.

Conor Sen:
As you guys know, I've been captivated by the debt ceiling negotiations this weekend and how they reflect today's social mood. Wall Street seems to always have a poor understanding of how Washington works because they're looking at the system through Wall Street logic, not Washington logic. "The stakes are too high. Why can't these idiots get a deal done?"

Think about the times when you've seen children get the attention of parents in serious conversation. If they're agitated enough they'll nearly tackle a parent to interrupt their activities. The Mom might say, "Sweetie, your father and I are in the middle of something, can't this wait?" And the exasperated kid will scream out, "You're not paying attention!"

That's what this feels like. Not that an angry public, through their newly-minted Republican representatives in the House, are acting like children, though clearly some are making that case. But that they feel like this is their rare opportunity to get the attention of those with more power than they have to say, "You're not paying attention! We need help! And if your only plan is to patch together another can-kicking solution so you can go back to ignoring us, we'd rather shut 'er down."

Now clearly austerity measures aren't the fix to what ails the public. But the public, especially the bottom 50%, wants change -- real change. If the change they get doesn't work, they'll demand a different kind, but they will no longer accept the socioeconomic status quo. When polled earlier this year, only 4 of the newly-elected House Republicans said there would be any scenario under which they'd vote to raise the debt ceiling. That's the mood we're up against. And while Congress and the White House may figure out a way to work something out this time, until the fortunes of the bottom half of the country are improved, we're likely to see much more "economic hostage-taking" on the part of certain government factions.

Professor Pinch:
I think that's very apt. There is a very different mindset taking shape out there, where folks who see this tremendous wall of debt are mad as hell and you get the sense they won't take it anymore. But at the same time, you have many folks -- who I think are by and large from the older generations -- that have spent their entire lives under the ideal that the government was there to help them, that government would always be there, expanding in reach and scope. The fact that we've seen the government expand the way it has during most Baby Boomers' lifetimes is not a mere coincidence to me.

Eisenhower worried about the expansion of government when he left office. Most folks just remember his "military-industrial complex" quote but the fact was, his view was that the US' strength came from its economy. That did not mean binging on borrowing to him. That meant a fiscally responsible government that tended to stay out of the private sector's way and let the market work.

All government spending exploded after he left. Kennedy spent much more on defense and space exploration, mostly as a counter to Eisenhower's resistance to getting involved in Vietnam and the fact that Sputnik was launched when Ike was president and the perception that we were losing the space race to the Soviets. LBJ? The Great Society came into effect. Nixon, Ford, Carter, Reagan, Bush I, Clinton, etc. all served as president as the government grew. And as the Baby Boomers started driving the agenda as well. I don't bring this up to stir the pot from an intergenerational perspective. In my mind, the pot has already been stirred and I'm just pointing it out. But we all know how bulletproof messengers are, right?

The bottom half issue is one that's a direct result of everyone watching, gobsmacked, as the Bush II Congress passed TARP; to cover an economy's sins. The level of panic was palpable because nobody knew who else was going down in the Fall of '08 and Winter of '09. But the bottom half doesn't see that because it's tough to. "Why should a relatively small cohort of bankers get this money when I can't pay my rent or put food on the table?" A powerful question, but from my vantage point, it's not one you can easily answer by cutting checks.
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