November 9, 2012
The result of what Obama calls the "Grand Bargain" with the Republican Party (GOP)---ie., the pigfight over the fiscal cliff---- is likely to be a deficit- and debt-cutting agreement whereby the GOP agrees to some very modest tax increases on the rich in exchange for substantial cuts to entitlement programs such as social security and Medicare.
The root of the problem for the Republicans is the rising cost of Social Security and federal health programs--not the bailout of, and corruption on, Wall Street. Republican memes is that the safety net is unsustainable and that it harms the nation.
Wall Street gunned for Obama in the election. As Paul Krugman puts it on his Conscience of a Liberal blog:
The story, as you may recall, is that the financial industry — having brought both itself and the rest of the world to the edge of disaster — was bailed out by taxpayers. Yet far from being grateful, top financial types were furious at Obama for occasionally hinting that some of them might have misbehaved a bit. And investment bankers — who normally lean Democratic — went overwhelmingly to the other side, pouring cash into Mitt Romney’s coffers in the no doubt correct expectation that a Romney administration would dismantle financial reform and treat their wealth with the adulation they believe to be their birthright.
Wall Street lost.
Wall Street's central assertion is that there is no alternative – the safety net must be cut--not defence. Immediate austerity is necessary. The best policy is to privatize social security because that means Wall Street is able to charge tens of billions of dollars in fees annually. So gutting the safety net is the essential act necessary to save the nation.
It is hysteria because austerity through budget cutting means that GDP falls even more than the deficit is reduced whilst the central problem for the US should be fostering economic growth to reduce unemployment. Obama should say no even though the looming combination of tax increases and spending cuts looks easily large enough to push America back into recession.
Why? Krugman says:
Because Republicans are trying, for the third time since he took office, to use economic blackmail to achieve a goal they lack the votes to achieve through the normal legislative process. In particular, they want to extend the Bush tax cuts for the wealthy, even though the nation can’t afford to make those tax cuts permanent and the public believes that taxes on the rich should go up — and they’re threatening to block any deal on anything else unless they get their way. So they are, in effect, threatening to tank the economy unless their demands are met.
The Republicans are into hostage taking.