In 1948, President Harry S Truman nicknamed the 80th United States Congress the “Do-Nothing Congress.” After controlling both houses of Congress for almost the entirety of the early 20th century, Democrats lost both the House and the Senate midway through Truman’s first term. Republicans who came to control Congress adopted a new strategy to halt American Progressivism — they became the party of “no.” They opposed much of FDR’s legislation. They opposed Truman’s Fair Deal legislation (which included universal health care). Joseph McCarthy, a Republican Senator from Wisconsin, helped launch a frantic wave of anti-Communist sentiment across the United States. McCarthyism, as it came to be known, was not only designed to stir up Americans against the Soviet Union, it was a platform Republicans used to castigate Democrats, who they thought were “soft on Communism,” or even Communists themselves.
This sounds awfully familiar. A relatively progressive liberal is in the White House. Halfway through his first term, both houses of Congress are controlled by Republicans. They oppose almost everything the President proposes (including universal health care). A right-wing populist movement, the Tea Party, is sailing through the country, accusing our President of adopting socialist policies. And once again, the Republicans have become the party of “no.” They are even saying “no” to their own ideas. In March of this year, Republicans on the Joint Economic Committee released a report called “Spend Less, Owe Less, Grow the Economy.” The report stated, “successful fiscal consolidations averaged 85% spending cuts and 15% revenue increases.” Yet, when the Obama administration proposed to an 83:17 ratio of spending cuts and revenue increases, Republicans demanded that increasing tax revenues be excluded altogether. Indeed, The party of “no” isn’t simply trying to be prudent; they’re trying to make Obama look bad. This political posturing comes at the cost of American taxpayers, who are currently waiting for Washington to come to find common ground in the debt ceiling debate.
While the Obama administration struggles to negotiate the terms of raising the debt ceiling, Republicans in Washington are as obstinate as obstinate as ever. 236 Republican members of Congress have pledged “ONE, oppose any and all efforts to increase the marginal tax income rate for individuals and business; and TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.” This is an odd statement, given that 13 weeks ago, Republicans called for increasing tax revenues. This political war of attrition could have disastrous consequences.
As the Center for American Progress points out; failure to raise the debt ceiling leads to economic uncertainty. “Most businesses don’t make big investments or ramp up hiring when they see a substantial risk of the economy tanking…. We’ve shows that a two-month failure to raise the debt limit could result in the largest quarterly decline since 1947, when relevant data were first reported.” The uncertainty that currently plagues US markets is driven by the fear of a technical default on federal spending. This default will occur as soon as August 2nd unless a compromise in Washington is reached soon.
In the meantime, markets are already showing weaker confidence in the US economy. A common indicator of economic health is the Credit Default Swap Spread, or CDS Spread. The wider the spread, the more expensive it is to purchase a CDS (which is basically an insurance policy) on US Treasury Bonds. The Economist observes, “one-year protection is now almost as expensive as five-year protection. This is more often seen in distressed markets where investors are pricing in an imminent default than with otherwise healthy borrowers with long-term problems.” In other words, some investors no longer see the United States as having problems down the road, they see a real risk of default. If the Treasury actually misses a payment (which hasn’t happened since 1979), US Treasury bonds could lose their AAA bond rating. Losing this rating would cause interest on future bonds to be higher, meaning the United States would owe more money on further borrowing. This cannot be allowed to happen.
Hopefully, Republicans will learn from their mistakes. After the “Do Nothing Congress” attempted to shoot down Truman, Democrats won back both houses of Congress in the following election. President Truman went on to defeat his Republican opponent Thomas Dewey (who was heavily favored to win) by successfully demonstrating that stubborn and ideological Republican congressmen had stifled progress in Washington. America’s distaste for the “Party of No” paved the way for an era marked by liberal dominance. I don’t think either party should dominate Washington. I do think, however, that it would be in the best interest of Republicans to stop their political grandstanding, and actually help the economy.