It seems incredible that a tiny faction of the Republican opposition in the US Senate can hold to ransom the entire country – and the global economy – unless their demands to re-write US law are met. I don’t think this is what the Founding Fathers had in mind when they created a system of checks and balances. Ultimately, why should New Zealanders give a toss whether the US manages to find a formula that allows it to raise its debt ceiling and get its federal government going again? Because in the short term, a US credit default would – ironically – cause a flight from currencies such as the kiwi dollar back to the relative safety of the greenback, which is still the world’s default currency in times of crisis. The value of our currency would crash, and the cost of imports (e.g. petrol) would suddenly go through the roof. That’s just for starters. Then things would get serious.
So how did this crisis begin? Doomsday arrived in September 2013, on the same day that the Democratic Party’s healthcare programme – nicknamed Obamacare – came into effect. For the Tea Party faction of the Republicans, this became the symbolic moment when President Barack Obama, their arch nemesis, put all Americans in the thrall of socialism. Once Americans had supped on state-provided healthcare, the Tea Partiers reasoned, their will to resist other forms of government provision would be sapped forever. It should be understood however, that the Tea Partiers and the so-called “moderate” Republicans differ only on tactics. The moderate Republican aim – to extort concessions from the White House on ‘entitlement reform‘ in return for passage of federal funding allocations and a debt ceiling extension – is exactly the same. The “moderates‘ led by House Budget Committee Chairman Paul Ryan want to roll back entitlements to Social Security, Medicare and Medicaid just as much as the Tea Partiers do. However, it is only the Tea Parties who think this goal can be achieved by a full frontal assault on the functioning of a government they regard as inherently evil. Compromise would be sinful, given the socialist horrors that are embodied by Barack Obama.
For the White House, this situation is non-negotiable. Bowing to threats and handing over the power to rewrite laws at will to a rebel group of Republican radicals would in effect, signal the end of the Obama presidency. That’s why the only compromise that Obama was floating in his dealings last week with Republican House leader John Boehner ( and has raised again in the current negotiations in the Senate ) has been to link any “entitlement reform” to higher tax increases on the wealthy, a linkage that is theologically abhorrent to the Tea Partiers. Stalemate has resulted. As the deadline for the debt ceiling approaches, a game of chicken is being played out in Washington. The Republicans are hoping that Obama will buckle, as he has done so often in the past, and offer them something. For its part, the White House is waiting for moderate Republicans to rein in their radical wing, if they can. Already, according to the polls, the Tea Party extremism and brinkmanship is doing damage to the Republican cause with the voting public, which could come home to roost in next year’s midterm elections.
For that reason, the Republicans are on the ropes and this weakness is being reflected in the erosion of their bargaining bids. Boehner’s offer last week – a deal now dead in the water – was for a short term increase in the debt ceiling, in return for progress on entitlement reform. This week, the Senate talks between Senate leader Harry Reid and Republicans Mitch McConnell are reportedly offering a longer term debt ceiling increase and a re-opening of the federal government in return for the lifting of a tax on medical devices. (Something, anything that would allow the Republicans to declare victory and go home.) In one sense, they can afford to do so. It is not as if the Republicans have not succeeded beforehand – and elsewhere – in shrinking the role of government and imposing major spending reductions on the Obama White House. The so called “ sequestration” process has locked in repeated reductions in government spending for the next decade – and this position was conceded by Obama in order to resolve the last debt-ceiling crisis, back in 2011.
The target this time has been Obama’s position that further cuts in major entitlements are conditional on agreement to raise taxes on wealthier Americans. Obama has not buckled on that point. Not yet, anyway.
Welfare & Criminal Liability
Talking of days that will live in infamy, today is when the measures that criminalise the partners and spouses of those who commit welfare fraud will come into effect. In effect, it is a kind of “Carmela Soprano’ measure where criminal liability is extended to all who benefit from the fraudulent activities of any member of a beneficiary household. This is really ghastly, beneficiary bashing stuff, and it is being enacted by the government for political gain. Welfare fraud is a relatively minor problem in this country.
In 2010 at the height of the fallout from the GFC, it was costing $16 million a year – which was a miniscule 0.1% of the total moneys paid out that year, up from .06% the year before. Regardless, the rationale for these new measures was spelled out in February.
…Associate Social Development Minister Chester Borrows said a new offence would be created to allow the partner or spouse of a person wrongly collecting a benefit to be charged. It would mean partners could face a fine of up to $5000 or 12 months in jail, as well as their share of the repayments…”Prosecuting partners who profit from welfare fraud will ensure that both parties who profit from the crime are punished, and will help the taxpayer recover the lost money faster,” Mr Borrows said.
Back in February, I tried to show the flaws and selectivity in this approach. Were we going to ensure that the partners and the spouses of white collar fraudsters would be similarly criminalized because they “profit from the crime” as well? Of course not. The process is about scapegoating a vulnerable part of society, not about going after people whose lifestyles resemble the lifestyles of the economic elite. The risks and likely fallout from this approach can be readily demonstrated. Kay Brereton, a spokesperson from the a beneficiaries group told RNZ in this interview about the consequences once the Social Development start ringing up to tell a boss or bank manager that a fraud investigation is being secretly conducted on their employee or client. (In 84 % of cases last year these investigations failed to lead to a prosecution.) Imagine if this happened while the person was still on their 90 day trial employment period. Would any employer continue to hire someone whom a government official is saying could be a possible fraudster? The RNZ report in February also included this incredible segment:
The Social Development Ministry says that in 95% of benefit fraud investigations, the person involved does not provide the necessary data, delaying enquiries by “ at least” 25 days. It estimates this delay costs $3 million a year, and gives the person time to cover up the fraud and destroy any evidence.
Safe to say, with no other social group would a department tot up its own ordinary administrative costs and then – in totally paranoid fashion – blame them on a plot by the people it is supposed to be serving. Clearly, the Ministry expects all of the information it wants from the very moment it asks for it – because judging by the above, the meter is running from the very moment the Ministry mails out its letter or lodges a phone call.
Let’s look at that. Lets assume the Ministry has got the right address, can express its needs clearly, and that the information it asks for can be readily obtained. All very big assumptions. Even so, some of the people involved are getting back to the Ministry in 25 days, which is just over three weeks. That sounds pretty good, right? But no, the Ministry doesn’t think so. Because from the moment they send out their request they assume the person is playing for time “to cover up the fraud and destroy any evidence.” Even though 84 % of the time, it is the department that has got the wrong end of the stick, and not the beneficiary. Yet regardless….as of today, people on benefits can be held criminally responsible for the actions of their spouses and partners. It is worth noting, as an erosion of the notion of criminal liability, fairness and social decency that we have previously recognised in this country.