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Wasn't the Debt-Ceiling Deal Supposed to Avert a 512-Point Dow Collapse? | The Nation

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John Nichols

John Nichols

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Wasn't the Debt-Ceiling Deal Supposed to Avert a 512-Point Dow Collapse?

You see, President Obama had to surrender to the Tea Party Republicans on every major economic issue in order to get the debt-ceiling deal.

If the president had not agreed to massive cuts, the establishment of a structure that could undermine Medicare and an approach to future economic debates that virtually assures that the United States government will have neither the ability nor the will to stimulate job creation. he would not have gotten the deal.

And if Obama had not gotten the debt-ceiling deal, the markets would have tanked.

That was the calculus at the White House, and among the Democrats who made the mistake of backing Obama as he veered far to the right in the debt-ceiling negotiations.

Unfortunately, it was wrong. Not just morally wrong. Not just politically wrong. Not just economically wrong. It was wrong with regard to the cherished markets.

The Dow finished Thursday down 512 points for the day—a 4.3 percent loss.

The S&P 500 and Nasdaq experienced similarly dramatic declines.

The three major indexes have in recent days erased all their gains for 2011—and they are nearing the 10 percent drop from the year's highs that would be defined as a major market "correction." The correction could, in fact, accelerate, especially if jobs figures that are expected tomorrow turn out to be disappointing.

The market dive started July 25, when it began to become clear that the Obama—who refused to take decisive action to raise the debt ceiling himself and declined to hold firm for new revenues that might have gotten the government some flexibility—was going to defer to the Republicans in the debt-ceiling fight.

There was never any question that the debt ceiling needed to be increased. Nor was there much question that steps needed to  be taken to address concerns about debts and deficits.

But there was a right way to do the deal and a wrong way, The right way was to increase revenues—with tax hikes for billionares and the ending to tax breaks for corporations that invest offshore—and cut wasteful defense and corporate-welfare spending. The wrong way was to maintain tax breaks for the super-rich while cutting education and safety-net programs that actually pump money into the economy.

The point here is not that the debt-ceiling deal, in and of itself, caused the markets to tank. The nation's economic challenges—high unemployment, a widening gap between rich and poor, tight credit, weak consumer spending, declines in manufacturing, a slowing of home sales—extend far beyond Washington and its silly fights.

But Obama's refusal to lead, and his seeming inability to check and balance the craziest excesses of an economically-illiterate Tea Party Republican caucus—which has few qualms about creating a crisis in order to score political points—is the problem. Bending to the right does nothing to stabilize the economy, let alone to start creating jobs or renewing hard-hit communities.

The United States needs a federal government that is in the fight for economic renewal—as it was under the leadership of Franklin Roosevelt in the 1930s—not on the sidelines. Or, worse yet, imposing cuts that actually make things worse.

Of course, the latest news will lead to renewed Republican demands for more of the same: tax cuts for the wealthy, tax cuts for corporations that offshore jobs and profits, deregulation, free trade and the shredding of the social safety net. Some GOP Congressional leaders may actually believe that making the rich richer will lead to economic growth.

But billionaires don't open factories in the United States with their tax-cut largesse, they invest in "emerging markets" on the other side of the world. To imagine differently is to buy into a fantasy that Wall Street abandoned years ago—when it started rewarding companies that lay off American workers with spikes in stock values.

The Congressional Progressive Caucus has made the right points about how best to engage in the debate about debts, deficits and the economy. Obama does not have to reinvent the wheel. He simply has to speak as an unapologetic Democrat in the tradition of FDR and those who defined the party at its most successful moments over the past century.

If Obama does not reject the failed fantasies of the past and start promoting a jobs agenda that is based on federal government investment in infrastructure, education and the stabilizing of state and local governments so that they can continue to deliver needed services, the Tea Partisans will continue to control the discourse. 

Obama must take the lead—with an absolute rejection of the extreme right's extremely wrong agenda—if he hopes to rally the popular support that is needed to define the debate and, ultimately, to start winning the fights that will determine the future of the US economy. 

Obama has to climb into the bully pulpit and take charge. If he does not, the circumstance will just get worse.

Compromises do not build confidence.

Cuts do not inspire.

Tax breaks for the rich do not does not jumpstart a stalled economy.

Austerity does not create jobs.

And if Barack Obama continues to surrender to the peddlers of the austerity fantasy, if he continues to refuse to use the full strength of the federal government to advance a job-creation agenda, he will have a lot more to worry about than whether John Boehner will still go golfing with him.

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