From 1/17/13

Alan S. Blinder is a professor of economics at Princeton—the hot bed of liberal economy, belief in big government, Keynes and the illusive (not if you believe them) Keynesian multiplier. I get that.

He is a frequent contributing columnist at the WSJ where he invariably represents a view that is opposite the one generally represented by the normal editorial line. I get that too, although the NYT will NEVER accord the same courtesy and journalistic ethics to conservative economists.

But his article on Tuesday: “The Debt Ceiling Is Scarier Than the Fiscal Cliff,” crossed the line from being simply wrong and misconceived to showing lack of integrity, in order to try and prove his point. That is what ideologue intellectuals do when the facts just do not fit the theory, their theory that is.

He starts by making the assertion that the fiscal cliff “deal” was better than the alternative “no doubt. Why? He follows that by making another assertion that states that going over the cliff would have caused a contraction in the economy of 4.5%. Again, a few words of explanation of how and based on what would have been helpful here.

He then goes on to say that the whole matter of fixing, needing to raise, the debt ceiling is: “one of the worst examples of American exceptionalism.” I guess that the only exceptionalism that America has for liberals of the Obama school is when it comes to negative things.

He explains that other countries do not have this type of mechanism. Other countries, in his words, “routinely pass budgets…” He forgets to mention there that since Obama became president, NO budget was passed by the Democratic-controlled Congress for the first two years and the Democratic-controlled Senate for the next two years. The Republican-controlled house did pass a budget every year that they had/have control of the house, but the Senate just ignored it and the president could not care less.

Blinder goes on to say that “… only in America there is another law that…sometimes contradicts…the budget law…” So what, if I may ask? There are many things that are only in America as far as governance is concerned and generally speaking, over the 235 years of this country, it has been the shining example of democracy and of good governance. It is true that since the election of this most partisan of presidents, the most ideologue of presidents, the governance of this country has collapsed. That is always the case when the CEO of any organization is incompetent but that does not make the system wrong. As I said in my previous blog, having another read on the budget in the context of affordability, availability, and desirability of borrowing is not only a common thing for any person and company—it is a good thing!

Blinder then commits one of the major intellectual dishonesties in his article. Rather than stating categorically that however large the cut in government spending following the failure to raise the ceiling, the national debt is secure. He leaves it open, stating that, “…that is why you hear about dark scenarios wherein the US defaults on the national debt…” He knows that will not happen, he knows it is constitutionally not permitted, he knows that even the president is not contemplating it (because it is not allowed nor required) so why not have the courage to state it? Why does he think that he needs to augment his argument with what is clearly nonsense? Is it because the argument is so weak?

Next we go to the fact that not raising the ceiling will “almost certainly” cause a second rating downgrade, which will result in “higher borrowing costs for years maybe decades to come” (the emphasis is mine).
Let’s set the record straight here:

  • In the summer of 2011, when S&P downgraded the US rating from AAA to AA+ it was AFTER the debt ceiling was RAISED. S&P commented then on the political process indicating that they are concerned about the lack of a credible plan to deal with the long-term fiscal deficit and mounting debts, and that the political situation indicates that no such plan will be achieved any time soon. THAT is why they lowered the rating. NOT because the debt ceiling was not raised, which it was.
  • What happened to interest rates on US debt following the downgrade? Not only did they not go up, they actually declined.
  • The threat by Fitch who kept their rating on US debt at AAA till now, to follow S&P (two years after S&P’s downgrade), and ALSO downgrade the US debt by one notch is meaningless; it has no effect on the market and is clearly the function of the long-term concern, rather than the raising or not of the debt ceiling.
  • Indeed one can make a case that if the debt ceiling will not be raised, interest rates will stay stable, maybe decline (although they already are so low), but certainly not go up as the market will see it as the first step in curtailing the out-of-control issuances of US debt.

He continues to try and paint disastrous outcomes without any substantiation, using again the “threat” of default on the national debt. The fact is that if the US Treasury bond market would for one second believe that such a threat exists, interest rates would have long ago moved very much higher. No one who understands anything about the US debt situation is concerned about the possibility of default and Blinder’s efforts to generate such concern are disingenuous and fear-mongering. Usually a sign of weakness.

Then, only toward the end of the article Mr. Blinder remembers that the fact that there has been no budget passed is relevant. And who do you think is at fault here? According to him, the “hyperpartisan Congress.” If this is the case, pray tell us, Mr. Blinder, why did the Congress not pass a budget when it was under total and clear control of Democrats? Why is it that during the last two years of the Bush administration when the situation was reversed (Democrats controlled the house only), budget was passed? Why is it that the Democrat-controlled Senate did not even pass a budget resolution? There is no hyperpartisan issue here. There is a clear desire by this president to AVOID passing a budget resolution, a budget which will have to once and for all make him take a stand on the deficit and debt issue, something which he does not want to do.

He ends his dishonest analysis by suggesting that a shutdown of the entire government resulting from no CR is better than not raising the debt ceiling. True to form of this entire article, in order to try and explain his case, he uses misleading example of the mid-90s where the shutdown was for very short periods, two or three times for 10–20 days each, as opposed to the consequences that he describes if the debt ceiling is NEVER to be raised again. This is like comparing apples to vodka.

On the whole, this article is an entirely baseless analysis by an intellectual who believes that he is always right, he can never be wrong, and the goal justifies the means.

Mr. Blinder is always blind, now he became intellectually dishonest too.