O`DONNELL: Joining me now, MSNBC contributor, Ezra Klein, columnist for “The Washington Post.”
Thanks for joining me tonight, Ezra.
EZRA KLEIN, MSNBC CONTRIBUTOR: Good evening.
O`DONNELL: Ezra, the Republican demands on the debt ceiling have shifted. There`s different groups asking for different things. And one of the things they want is a balanced budget amendment.
This seems to me like something you could just say, OK, sure, we`ll do a balanced budget amendment. You`ll never ratify a balanced budget amendment. It`s impossible to do it, amendment to the Constitution to balance the budget.
KLEIN: Bruce Bartlett is a former Reagan economic official and he looked at this. And he said, this amendment, he said, is the dumbest proposed amendment I have ever seen. It looks like it was written on the back of a napkin.
And it does.
Here`s how extreme the balanced budget amendment the Senate Republicans passed is — it would rule the Ryan budget, the GOP budget unconstitutional because it`s too profligate. It spends too much money.
So, one of the current ways you can sort of sum up the Republican position on the debt ceiling is that in order to raise the debt ceiling, we need to pass a balanced amendment that will make the Republican budget unconstitutional. It`s not serious policymaking.
O`DONNELL: But you could promise them a vote on it and it will never become an actual amendment to the Constitution. Would that satisfy them to just have a vote on it?
KLEIN: I don`t know if it would satisfy them, I would prefer not to have a vote on it because, you know, you can have things pass unexpectedly. You can have bad consequences out of the financial crisis, a secondary recession coming from, you know, an unexpected spike in energy prices and then there`s some sort of movement in the states you just don`t expect.
That balanced budget amendment, I don`t know if people have taken a close look at it. But in effect, it would control — it would hold spending down. It`s not just budget. What it really does is it says spending can`t be above 18 percent of GDP in the previous year, which means about 16.7 percent of GDP in any given year.
Right now, spending is 24 percent of GDP. So, you would essentially have to cut the federal government by 1/3, almost to half in order to get there. We have never done anything like that before. You can`t do that and keep Medicare and Medicaid, Social Security and the military. It wouldn`t be possible.
O`DONNELL: Now, do you believe anyone on Wall Street actually told Eric Cantor, hey, yes, don`t worry about raising the debt ceiling, it`s not important to us?
KLEIN: I want to put Eric Cantor in a room with a bunch of folks on Wall Street who will them that we need some revenue in this country. And see if he comes back and says, well, just on Wall Street, we need tax hikes.
Look, as you can see in the graph we`ve got here, the single largest policy contributor to our deficits going forward are the Bush tax cuts. You extend those and you`re looking at $4 trillion in new debt. Boehner is saying to raise the debt ceiling, he wants $2 trillion in spending cuts. So, if you add those policies up, his tax cuts are double, on the debt, what the spending cuts would take away from the deficit.
It`s really important to realize that we`re not having a deficit conversation on both sides here. The Republicans are having a conversation about tax cuts and the size of government. And Democrats are, I think, actually more broadly having what they think is a deficit conversation. But that`s dangerous not to be actually having a dangerous conversation over the debt ceiling, because when the two parties aren`t speaking about the same thing, that makes it harder to reach an agreement. And as Senator Sanders pointed out I think quite correctly, if we don`t reach an agreement on the debt ceiling, the consequences of that will be functionally unimaginable for the global financial system.
O`DONNELL: Though a lot of us have been, I think, possible to some of the audience, troublingly non-specific when we get into what the disaster of the debt ceiling would be. And partially, that`s because we`ve never seen it happen. We`re talking about a catastrophe that we`ve absolutely never bothered to chart out before because this was always, as you know referred to in the Congress as a must-pass bill, which meant both parties knew it had to pass.
They could stump about it. They could make speeches about it. But they couldn`t get in the way of it actually passing. They had to make sure there`d be 51 votes in the Senate and just enough in the House to get the thing passed.
It seems that the Republicans in the House do not understand — I mean, genuinely do not understand that.
KLEIN: Well, let me — it`s useful to be specific as you say. So, take the financial crisis we had two years ago, three years ago now. And imagine it basically 1,000 times worse.
What happened in the financial crisis is we had a class of assets, these bonds backed by houses. We thought it was safe. It wasn`t safe. And when it wasn`t safe, when it turned out to be risky, the entire financial system froze because nobody knew how much money they really had and nobody knew if they were going to get paid back. That`s in the real simple terms what happened.
The singular safest asset in the entire global financial system, the asset on which everything else is based upon, is the treasury security. It is our government`s debt, our government`s capacity to pay back creditors. If that goes into doubt, if the financial system cannot trust the bedrock of the entire system, we will have a financial crisis that makes what we just went through look like child`s play. It will be nothing compared to what we`ll see.
O`DONNELL: Ezra Klein of “The Washington Post” with that good news — thank you very much for joining me tonight, Ezra.
KLEIN: Thank you.
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