The GOP Doth Protest Too Much, Me Thinks

Don’t take the GOP protests about the Obama administration not submitting a deficit reduction plan this year. In much the same way that Hamlet wondered about his mother’s complaints, they clearly are protesting too much

Republicans in Congress are insisting that the administration should propose a long-term deficit reduction plan now, that is, in late June/early July 2010, because, they say, that’s what’s needed to reassure the markets and, therefore, to keep interest rates and inflation in check. They routinely rail against the administration’s unwillingness to propose what they want to say is critical and describe it as a fiscal failure that deserves to be punished in November.

There are two big problems with the GOP’s protests: First, their rationale isn’t supported by any facts. Second, they clearly are much more about politics than economics.

The economic side of this argument with as straightforward a statement as you can make: There’s nothing to support the claim that, in the summer of 2010, financial markets need to be reassured. Current demand for long-term U.S. securities – the ones that will be most affected if there are truly Wall Street jitters about the ability and willingness of the U.S. to repay its debt in the future – hasn’t just been strong, it’s been very strong. As a result, as anyone who in the past month or so has looked into refinancing a home with a 30-year fixed rate loan knows from personal experience, interest rates are low and stable rather than high and soaring. That’s completely counter to the economic argument that a plan needs to be proposed and adopted now to reassure the markets.

Inflation? With unemployment at close to 10 percent and capacity utilization less than 75 percent, the concern should be far more about falling rather than rising prices.

The important question, and the one that so far hasn’t been asked, is the political one: Why are Republicans demanding that the Obama administration submit a long-term deficit reduction plan now?

On the one hand, it makes absolutely no sense for the GOP to want one now. With many predicting big republican wins in both houses in November, a deficit reduction plan considered and adopted before Congress adjourns this year would be far more likely to reflect Democratic priorities than one considered next year.

On the other hand, it does make sense for congressional Republicans to demand a plan from the administration now if all they want is a campaign issue. If they actually have no intention of allowing a deficit reduction plan to be adopted this year, then, given the political problems that the pieces of a deficit reduction plan will cause for whoever proposes it, having the White House offer one now that can be criticized and used as a political rallying cry is the way to go.

From a White House perspective, given the current election predictions it makes more sense than ever to wait until next year to do something on the deficit for political reasons. Doing it now would mean that the administration would have to take the full blame for what’s discussed. Doing it next year, especially if the GOP takes control of one or both houses, would allow the responsibility to be shared.

Expect the GOP protests to get louder. Expect the administration’s plan to wait until next year to remain in place.

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