The battle for the soul of the GOP
In the match between Wall Street and the Tea Party, who will win the Republican soul?
Wall Street and big business fear Tea Partiers won’t allow House Republicans to raise the debt ceiling without major spending cuts – and without tax increases on the wealthy. Wall Street and big business know this would be unacceptable to the White House and congressional Democrats.
The Street and big business want to tame the budget deficit but they don’t want to play games with the debt ceiling. Credit markets are fine at the moment, but if the debt ceiling isn’t not raised within the month – weeks before August 2, when the Treasury predicts the nation will run out of money to pay its creditors and its other bills – credit markets could go into free fall. The full faith and credit of the United States would be jeopardized. Interest rates would skyrocket. The dollar could plummet.
The Tea Partiers don’t care about the debt ceiling. To them, it’s a giant bargaining chit to shrink government. Nor do they worry about credit markets. If the full faith and credit of the U.S. government is no longer honored, so much the better.
You see, Tea Partiers hate government more than they hate the national debt. They refuse to reduce that debt with tax increases, even with tax increases on the wealthy, because a tax increase doesn’t reduce the size of government. The Tea Partiers’ real aim is to shrink the government.
But the Street and big business dislike the national debt more than they dislike government. And they wouldn’t even mind a small tax increase on wealthy people like themselves in order to cinch a deal on raising the national debt. They have so much money they’d scarcely notice.
In truth, government has been good to Wall Street and big business. It bailed out the Street. It saved GM, Chrysler, and AIG. And most government spending improves the profits of big businesses – military contractors, big agriculture, giant health-care insurers, Big Pharma, large construction companies.
Tea Partiers have almost as much contempt for big business and the Street as they do for government. After all, the Tea Party was born in anger over the Wall Street bailout.
This is the heart of the civil war in the GOP.
House Speaker John Boehner, appearing today at the Economic Club of New York, tried to placate both wings, but he was far more in the Tea Party camp than with his audience. He said “everything is on the table” in order to reduce the nation’s debt – a bow to Wall Street and big business pragmatists. But in the next breath he ruled out tax increases.
Boehner says he won’t allow the U.S. to default on its obligations – exactly what the Street wants to hear. But then he insists on tying the debt-ceiling vote to a deficit-reduction deal. “The cuts should be greater than the accompanying increase in debt authority the president has given. We should be talking about cuts of trillions, not just millions.”
Boehner knows the only way to get cuts of this magnitude without increasing taxes on the rich (or cutting defense — something else the GOP wouldn’t think of) is to make mincemeat out of Medicare and Medicaid, slash education and infrastructure, and kill off most of everything else people of moderate means depend on.
In other words, Boehner’s conditions are just another version of the Paul Ryan plan House Republicans approved last month – the same plan that brought howls at recent Republican town meetings. Democrats will never agree to it, nor should they. Nor will the rest of America.
And that means no agreement to increase the debt ceiling.
Boehner is siding with the Tea Partiers. Wall Street and big business hold the purse strings in the GOP but the Tea Partiers are now the ground troops. Boehner and his GOP colleagues figure Wall Street and big business will stake them in any event. They need Tea Partiers to get out the vote in 2012. And they’re afraid angry Tea Partiers will get out the vote against them in their own primaries.
But Boehner is playing with fire. If the debt ceiling isn’t raised and the financial system begins to collapse, the GOP loses not only Wall Street and big business. It loses everyone who’s still sane.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.robertreich.org.