On the brink . . .
Well, here we are folks, on the brink of financial catastrophe. I have to admit, I’m kind of picturing us all having kind of a Charlton-Heston-on-the-beach moment sometime in the near future. At least the markets (here, 31 hours before the “deadline”) still seem confident that different sides will agree to some sort of compromise that won’t really be much of a compromise, but will allow enough Republicans to save enough face to garner the votes needed to eke a bill through the House.
This is my third blog entry about the debt ceiling in the last two-and-and-third years. It feels like yesterday that I wrote my first entry in July 2011 that compared Republican tactics to terrorism, while also noting, I think fairly, that, unlike terrorists, people had actually elected Republicans to a majority in the House. Despite gaining 54 percent of the House seats in 2012, however, Republicans received 1.2 million less votes than Democrats. So, now, as a party that only a minority of the US public supported in the last election, they still continue to threaten the nation’s economy unless the President agrees to revoke his support for laws passed by Congress and declared constitutional by the Supreme Court.
In the entry I wrote in January of this year, alongside a historical discussion of the origins of the debt ceiling as a procedural vote, I argued that President Obama needed to “throw the steering wheel” out of the car during the next round of debt limit negotiations and not negotiate. He and the Democrats seem to have mostly adopted that strategy, with the stated position that they will only negotiate over “process” not “policy.”
Whatever happens to the US and global economy, it’s important for American democracy that he stick to that position. Otherwise, we will have an established precedent of House opposition majorities, Republican or Democrat, always having the option of threatening to blow up the economy through default if they don’t get their way. The current shenanigans (being perpetuated by many of the same politicians who undoubtedly boast to their constituents during campaigns about carry around little pocket versions of the Constitution) actually threaten to unravel the checks and balances that are the very framework of the document.
In a good piece I read several weeks ago, one of the Slate writers, similarly advocating that President Obama refuse to negotiate, compared Republican threats to that of Russia – were its leaders threatening to nuke Houston. I wondered to myself, which would actually cause more economic damage – Republicans nuking the economy or Russians nuking Houston?
Bear with some of these assumptions – I know I’m grasping a bit here, but . . . while I couldn’t find the value of property in Houston, I did find an estimate on Wikipedia for the total value of real estate in Manhattan in 2006 – about 800 billion dollars. With the real estate collapse, followed by a slow recovery, I think it’s fair for our purposes to suggest that 800 billion dollars is still an okay estimate seven years later.
Manhattan’s population is about 1.6 million, and Houston’s is about 2.1 million. The average per capita income in Manhattan is 43,000 dollars (I was surprised it was that low), and about 18,000 dollars in Houston. If we assume that GDP per capita correlates directly with real estate values, then, using the information available, I estimate that the total real estate market in Houston would be worth about 440 billion dollars.
How much damage would a default cause the US economy? Now that’s a real shot in the dark, but let’s estimate somewhere between the 15% dive in one of the first years of the Great Depression, and the roughly 7% drop that characterized the crash of late 2008-early 2009; so, let’s say a 10% drop in GDP over the next year. That would represent roughly 1.5 trillion dollars of the US GDP of 15 trillion dollars. In other words, not raising the debt ceiling could reasonably cause more damage in one year than the combined value of all the real estate in Houston AND Manhattan. Bin Laden could only have dreamt of that level of destruction.