Obama Is Winning the Debt-Ceiling Duel, and It May Not Matter a Bit

Last Updated Jul 15, 2011 3:09 PM EDT

President Obama is outpunching Republicans in the political brawl over the debt ceiling. But the real question remains whether he can win the economic fight against a tougher foe -- unemployment, stagnant wages and listless growth.

Certainly Obama landed blows in his press conference this morning outlining the urgency of reaching a deal on the government's borrowing limit. He dismissed a Republican plan that would reduce spending by $2.4 trillion without finding ways to boost revenue, pushing instead for a bigger deficit-reduction package that blends cuts and tax hikes. And with an August 2 deadline looming, the President gave Congress a maximum of 36 hours to come back with a "serious" plan. His other key points:

  • Most Americans, including Republican voters, favor a mix of revenue growth and spending cuts to curb the deficit
  • Cutting Social Security, Medicare and other entitlements without boosting revenue would hurt the poor and middle class
  • Modest cuts in entitlements, coupled with tax hikes, can slice "trillions" of dollars off the debt over the long term
  • Republican lawmakers are "dug in ideologically" and are ignoring their own rank-and-file supporters in refusing to consider tax increases
  • The government must pare the deficit so it can proceed with the kind of spending required to energize the economy
Republicans eating their own
Shrewdly, Obama framed the deficit battle as a matter of both Democrats and Republicans being "willing to take on their bases." Why shrewd? Because the White House has already done that, squashing liberals who favor bolder policies to boost the economy and reduce the deficit, such as launching a program akin to FDR's Works Progress Administration or taxing securities trades.

By contrast, Republicans can't (or won't) take on their bases on taxes, or even exercise simple good sense and lift the debt ceiling in the interest of avoiding economic calamity, without paying a heavy price at the polls. As a result, the party is reduced to staging symbolic protest votes, as House Republicans are planning next week, over deficit cuts that stand no chance of passage. In effect, the GOP's dead-end economic policies have steered them into a political cul-de-sac.

Obama can tack right, in short, but Republicans can't tack left. He also left himself a back-door by refusing to reject Sen. Mitch McConnell's, R-Ky., proposal to raise the debt limit in three stages on condition that the White House commit to unspecified spending cuts. That's wise, since GOP hard-liners may yet refuse to give on the ceiling, consequences be damned. And the President comes off sounding reasonable without relinquishing the leverage he gained by advocating even bigger spending cuts than Republicans.

Eyes on the prize: A healthy economy
Here's the broader concern: Economics, unlike politics, isn't a chess match. You can't win the game just by pushing your opponent around the board; you actually need policies that work. Whatever fiscal measures emerge from the debt-ceiling fight, it's questionable whether any of the proposed budget plans, including Obama's, will reignite the economy.

Economic Policy Institute analyst Ethan Pollack notes that the White House's 2012 budget request would cut non-defense discretionary spending -- that's stuff like education, health research, infrastructure, law enforcement, child care, and pollution control -- to 2.2 percent of GDP (see above chart; click to expand). While that's higher than the 1.5 percent of GDP level that Rep. Paul Ryan, R.-Wis., has offered, it still amounts to reducing federal spending to its lowest level in more than 50 years. That would be lower than under Ronald Reagan (3.4 percent) and Bill Clinton (3 percent), for instance, and well below a historical average of 3.6 percent.

Although Obama has Republicans playing defense, in other words, he's still playing on their turf. As The Nation puts it:

President Obama and his team have recently taken to talking about "a unique opportunity to do something big" with regard to the debt ceiling. Little, however, has been said about applying that desire for bigness to job creation. Obama wants to play the role of reasonable adult, urging members of both parties to "eat our peas." But being reasonable means leading a nation that cries out for relief and reconstruction after months of stalled job growth -- not acting like a hostage negotiator.
Doing something "big" is great, but only if it works.

Chart from the Economic Policy Institute

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    Alain Sherter covers business and economic affairs for CBSNews.com.