Will the Republican Party really go thru with it, force a national default, and cause a “huge financial calamity” for the world? A few days ago it looked like Obama — following his now well-established playbook — would give in to all the Republican demands and then give some more, effectively sabotaging his reelection, his party, and the economy in one fell swoop. The $4 trillion "grand bargain" he proposed apparently would have included significant (and economically irrational) cuts to the key social insurance programs that are now the only popular thing with which the Democrats can defend themselves. But the Republicans wouldn't bite: their one nonnegotiable demand, far more important than reducing the deficit, has all along been that the extremely wealthy must under no condition share the "shared pain" of cutting the deficit.
If Congress fails to raise the debt limit, the US government will default. This will have immediate and devastating economic consequences simply because the US will have to cut off payment on billions of dollars of obligations to Medicare, Medicaid, and Social Security recipients, education programs, military contractors, etc, etc. It could also significantly increase the government's cost of borrowing, making it that much harder to get the debt under control.
But beyond that, a US default threatens to jolt global investor confidence. On top of the daily deteriorating situation in Europe, the dangerous credit bubble in Brasil, the continuing stagnation in Japan, and uncertainty in China, a US default could send global investors into a panic. Right now the global economy is only functioning by miraculously sustaining confidence in a whole range of speculative bubbles; any jolt could bring the whole house of cards down.
Republicans don't care:
Instead, many Congressional Republicans seem to be spoiling for a fight, calculating that some level of turmoil caused by a federal default might be what it takes to give them the chance to right the nation’s fiscal ship. “I certainly think you will see some short-term volatility,” said Representative Austin Scott of Georgia, the president of the freshman class. “In the end, the sun is going to come up tomorrow.”The ignorance on display here is shocking. This is not about protecting the interests of the wealthy — as even a right-wing economist will tell you, forcing the government to default risks tremendous damage to the interests of corporations and investors. And it's not about politics — if the nation defaults, the economic devastation that follows will make the Republicans pariahs to the voters, especially after Obama's offer of even bigger cuts than the Republicans (which would in that case rapidly be reinterpreted as a brilliant tactical maneuver).
No, this is ideology. If the Republicans bring the whole thing down, we'll look back and recognize this moment as the apotheosis of the distinctive Tea Party response to the crisis (still the only coherent response on offer thus far in the US). As I have argued, Tea Party thinking is marked, like most other forms of neoliberal subjectivity, by the incapacity to recognize the social. It is a dogmatism of the individual, which is why the thoughtless comparisons to fascism — or even to the communal racists of the civil rights era — are so misguided.
Once the social relations that found all economic transactions have been rendered invisible, the market appears as a feature of nature or some kind of neutral mediation of human activity. Under capitalism, of course, wealth is produced socially; every individual is interdependent and it's simply incoherent to try to understand the production of wealth outside a complex network of social relations. Distribution of that wealth — income — is determined by one set of those relations, most prominently the amount of bargaining power the individual can bring to bear in the market. But once society has been eliminated from the picture and the market posited as a feature of nature, one's income is easily understood as, in some unmediated sense, "earned". And we thereby come to the Tea Party's founding myth, that the individual is the source of all value.
The trope of taxes or welfare programs as government theft of the individual's earnings has been a consistent feature of neoliberal political discourse. It is not, however, merely a result of selfishness, as widely polemicized on the left. People are more selfish under neoliberalism, but that is itself a social outcome that must be explained. And beyond that, the "anti-big government" political movements — perhaps the only successful mass movements of the era — are founded not on selfishness but on a quintessentially moral intuition: it is wrong to take from those who are deserving and give to those who aren't.
In the 1980s, the Reagan Republicans marched proudly under this banner; theirs was a righteous cause filled with the youthful vigor of a true revolution. Their morality was capable of a "triumphant affirmation of itself" — they had located the source of the rot in America and now strode forth to destroy it. And in fact this liquidation of Fordist vestiges was necessary for neoliberalism to thrive.
The Tea Party is different, driven by rage and ressentiment rather than self-affirming mastery. The revolutionary offensive has run its course, the Tea Party is not its charging vanguard but the tattered remnants of its retreating army, wandering in the Russian wilderness and succumbing to gangrene (too bad we had to burn Moscow to bring them to this!). The social crisis must be explained, but without the concept of society, how can the Tea Party come to terms with the disintegration of the neoliberal project? The old scapegoats, most long vanquished, are the only option.
This has real consequences. In neoliberalism's expansionary moment, the "anti-big government" movement was linked to the dynamism of the economy, clearing obstacles like health and safety regulation that blocked business expansion, opening new realms to entrepreneurialism thru privatization, preventing any defense of labor that could have impeded increasing exploitation, and affirming the ideological basis of neoliberal inequality by trapping the underclass in penury and violence. But the same impulses, in the moment of neoliberalism's crisis, forcibly separate popular consciousness from apprehending the dynamism of the economy.
The crisis is fundamentally a failure of growth: the engine of value-creation has died. Deficits have been severely exacerbated by economic contraction and stagnation, and the massive government debts would quickly be brought under control with a renewal of robust growth. Yet for the Tea Party (and, incidentally, for most of the left) the paralysis of growth is a non-issue. The only question is how to distribute the pain of austerity so that it falls only on those who deserve it.
This in some sense reflects the stagnation of the economy — its dynamism no longer visible, it has receded from popular consciousness. Yet it also ensures continued stagnation, if not further collapse, because only a new formula for growth can end the crisis and address subsidiary issues like the deficit. The only constituency that grasps this — the neoliberal mainstream represented by people like Obama — fundamentally misunderstands the crisis and is therefore incapable of developing an adequate response.
These are the political options that stand before us: immediate collapse or gradual collapse. If we prefer another path, we'll have to find it ourselves.