Jeremy Cutcher is a political science senior and Mustang Daily liberal columnist.
Since President Obama unveiled his 2012 budget proposal last week, Democrats and Republicans have drawn their battle lines and marked their territories. The recent developments in Wisconsin only serve to further delineate exactly what is at stake in the current budget crisis.
At the federal level, there are actually two battles being fought. One is about financing the government through the end of this fiscal year through a continuing resolution, while the other is about the long-term solvency of the U.S. government in reference to the ballooning national debt. Since Oct. 1, the government has been funded through continuing resolutions, meaning Congress was unable to get an appropriations bill passed before the end of the fiscal year last year.
The present continuing resolution ends March 4, with a government shutdown possible if Democrats and Republicans cannot agree on terms to fund the government through the rest of this fiscal year. The Republican-controlled House just passed a budget for the rest of the fiscal year with $61 billion in cuts, reducing funding for government programs ranging from foreign aid to Pell Grants for low-income students.
Many believe the cuts are too drastic to pass the Democratic majority in the Senate, making the possibility of a government shutdown that much more likely, especially given the fact that Congress is on break for President’s Day and doesn’t reconvene until Feb. 28. I am all for balanced budgets, and I do believe that federal spending should be reduced, but the reason Obama increased non-defense discretionary spending so much over the last two years (up 24 percent) is because of the financial crisis and the ensuing recession. Spending needs to be reduced, and was only temporary to begin with, but we need to make sure the strength of the economy is enough to support job growth, and cutting benefits during uncertain times does nothing to restore consumer confidence and increase consumer demand. When demand increases, businesses will use the billions of dollars of capital they are sitting on to invest because they will see an increasing prospect for profits. Until confidence is restored, growth will continue to remain sluggish.
To be clear, though, the portion of the budget that Republicans and Democrats are fighting over represents less than 15 percent of the federal budget.
The federal budget is divided into two categories: discretionary spending (defense, education, health and human services, etc.) and nondiscretionary spending (Medicare, Medicaid, Social Security, etc.). Thus, Republicans being so strident about cutting spending in non-defense discretionary spending now is less about the long-term debt than it is a political decision to cut programs the administration considers important. And if the cuts do harm the economy, it will only provide Republicans with more political ammunition come election time.
Even the Obama administration has set the issue of entitlements aside by not addressing them in the budget for 2012. Nondiscretionary spending comprises 56 percent of the federal budget and represents the bulk of the U.S.’s long-term liabilities. The Obama administration is very adept at politics, thus Obama avoided addressing entitlements in his budget because it would be politically toxic. The debates would be a repeat of the health care debate, when Obama’s approval rating was the lowest because Congress debated the bill for an entire year while unemployment continued to rise. The partisan bickering made it seem as if Congress was insulated from the plight of the average worker, and led to the rise of the Tea Party and the Republican sweep in the House.
Which brings us to the situation in Wisconsin. There have been protests in the capital of Madison ever since the Wisconsin Senate drafted a bill that would close a projected $3.6 billion shortfall by forcing public employees to pay 5.8 percent of their salary toward their pensions and 12.6 percent of health-care premiums and would also eliminate the collective bargaining rights of unions. The situation has become so volatile that a handful of senate Democrats have left the state so that the senate does not have the required 20 members to vote. Although portrayed as a budget battle, the unions have already agreed to contribute more to their pensions and health care.
The real goal of the bill is to eliminate the bargaining power of the unions, and, in effect, the power of a large part of the Democratic base. Union organizing and collective bargaining is inherent to capitalism, yet there remains a strong tendency in conservatism to oppose unions primarily because it aims to redistribute wealth, though it attempts to do so through the labor market rather than government transfer payments.
Adam Smith, the so-called “father of capitalism,” even recognized the need for labor unions as a natural growth of the labor market: “What are the common wages of labour, depends every where upon the contract usually made between those two parties, whose interest are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labor.”
The problem with increased wages is that rather than redistributing wealth between capitalists and workers, it only redistributes wealth among the workers as businesses pass on the costs of the increase wages (in effect an increase in the price to employ additional workers) to consumers in the form of increased prices for goods and services. The real issue is that more and more wealth has been concentrated at the top, with American CEOs making 260 times as much as the average worker in 2005, up from only 24 times as much in the ’60s. This is largely the reason why there is so much outstanding consumer debt: Americans want the continued promise of a certain standard of living while having to do so with stagnant or declining wages. With the “ownership society” the new manifestation of the American dream, it’s no wonder that consumer debt funded the housing boom and then imploded on itself.
What the American economy needs is some form of control over CEO compensation, whether in the form of cultural restraint, as Adam Smith suggests, or federal limits if voluntary requests fail. The U.S.’s budget crisis is really an American existential crisis: the way we decide to solve the crisis could define the limits to the American dream for generations to come.