The phony default threat

In my last post, I mentioned the real probability that the debt default crisis did not exist. So, why is this fiction being preserved by both parties?

In order to answer that question, I revisited a book that I discussed somewhat on this blog several months ago. It is Paul Krugman's book "The Conscience of a Liberal".

Krugman believes in the redistribution of income, as all good liberals do.  After all, that is what Obama was talking about when he said that he wanted to "spread the wealth".  The big issue in the phony debt limit crisis was this issue of taxation. Obama and the liberals want higher taxes.  That's because they believe in it. But they must also know that it is unpopular.  Hence, they did not want this debt limit debate to go on much longer.  The risk was that they would lose the debate and therefore run a very grave risk of losing big in the elections next year.

But why should the Republicans join the Democrats in sliding this debate under the rug? Shouldn't they have welcomed it?  Well, the risk was very great for the Republicans too, because if they lost that debate, much higher taxes were on the way, and they would have been marginalized.  Hence, the same reason for not dealing with this problem existed for both parties.  The risk that the issue would be resolved in favor of one side over the other was just too great to take.  They both decided to punt and to pretend that they actually did anything here.

Both parties conspired not to deal with the issue so as to keep the status quo.  The status quo, however, is becoming a bigger and bigger problem.  For the debt problem is real, but the default threat was phony.

Raising the debt limit did nothing to solve the problem and actually made it worse.  For this, both sides are to blame.