The Great Muddle

image: downtown Freeport, Illinois...courtesy Wikipedia Commons

In what should have come as a surprise to precisely no one, it was reported this past week that the Republican congressional “leadership” has backed down on President Obama’s request to extend the payroll tax cut. I’ve posted before that I believe gutting the already-insolvent Social Security program’s designated revenue stream is exceedingly bad public policy, so I’m not going to beat that particular dead horse yet again.

Instead, I’d rather discuss a different aspect of this story—why exactly it is that after riding the Tea Party Tsunami to regaining control of the House of Representatives last year, the Republican Party since then has backed down on every single “fight” it has taken up with a president who was supposedly mortally wounded politically. The only such engagements the Republicans can claim to have “won” since their victories in the midterm elections are those in which President Hopey-Changey backed down before the battle was even joined—on freezing federal employee salaries for instance (indicating, of course, that doing so actually fit the Obama agenda, even if you will never convince his die hard supporters of that fact). From the multiple federal government shutdown threats, to raising the debt ceiling, to creating the utterly ineffectual deficit reduction commission, to extending the payroll tax cut, when push came to shove the Republicans, for all of their tough guy rhetoric, blinked every single time.

The pattern by now is so clear that it should be obvious to all but the most addle-minded of observers. When it comes to the economy, conventional left-versus-right politics no longer exists in America. Instead, policies which enable extend and pretend to carry on a bit longer will ALWAYS win the day, no matter which party is nominally pushing them. Whether they consciously realize it or not, most politicians across the political spectrum instinctively know that nothing will effectively end their careers faster than enacting legislation that can be directly attributable to setting off the next round of economic collapse.

This is why the Democrats, and Obama in particular, have resisted calls from the likes of Paul Krugman to greatly increase government deficit spending above its already insane levels in order to “jump start” the economy. The result of such madness would quickly be $200 oil and $7-a-gallon gasoline, and a crash in the consumer economy that would make 2008 look like a boom year by comparison.

On the other side of the aisle, the Republicans, for all of their bashing of “out of control" federal spending, have scrupulously avoided pushing through any form of genuine austerity programs such as the ones in fashion now all over Europe. Doing so would also result in another huge economic crash, just a deflationary one rather than an inflationary one.

Back on July 29th of last year, in my post, "GDP Checkmate – Four Choices of the Apocalypse" in the run up to the "last minute" agreement to raise debt ceiling, I wrote that our “leaders” were backed into a corner and faced with having to make one of four choices. It’s pretty clear now that they have chosen Option 2:

2). Raise the debt ceiling and MAINTAIN current levels of deficit spending. This would probably be Obama’s first choice to get him past Election Day 2012. This option would achieve results similar to those above, but it would take a little longer to get to hyperinflation and economic ruin, most likely at some point in Obama’s second term.

Anyone who thought the politicos would act any differently made the mistake of thinking that they really mean what they say whenever they open their mouths. In reality, Option 2 was their only real choice, given that their whole existence is staked in the system as currently constituted. The alternative is an economy resuming its free fall and the voters placing the blame squarely upon any incumbent they can vent their wrath against the next time around at the ballot box.

In closing, regarding my prediction that Option 2 would likely push back the day of economic reckoning until sometime in Obama’s second term, I see no reason six months after I first made that assertion to alter that time line. The Great Muddle will continue on…until one day some event beyond the control of the politicos rocks the system sufficiently to kick off the next phase of collapse.


Bonus: "Beat your feet in the Mississippi mud"