A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Thursday, October 10, 2013

Transcript: Debt Ceiling Options and Demand Side Redux

This is the 600th episode of the Demand Side Podcast. To mark the occasion we will remember the Demand Side view and if we have time, we'll relay a piece on the personality disorders of the rich. But first, to fill in your understanding of this debt ceiling debacle coming up, and the President's legal options, some material from the Columbia Law Review. This was pursuant to the last debt ceiling debacle, in the summer of 2011, and was published in October 2012 under the title
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Now this is not about the chaos that might ensue whatever the president decides in the financial markets, which are an interlinking web of often very short-term arrangements, where an interest rate spike as might and probably will occur in uncertain conditions. This is about the options, and as the authors make immediately clear, the president has no options that are constitutional. Ignoring the debt ceiling is probably the least unconstitutional.

Authors are:

Neil H. Buchanan, Professor of Law, The George Washington University Law School, and Senior
Fellow at the Taxation Law and Policy Research Institute, Monash University.


Michael C. Dorf, Professor of Law, Cornell University Law School.
The federal statute known as the “debt ceiling” limits total borrowing
by the United States. Congress has repeatedly raised the ceiling to
authorize necessary borrowing, but a political standoff in 2011 nearly
made it impossible to borrow funds to meet obligations that Congress had
affirmed earlier that very year. Some commentators urged President
Obama to ignore the debt ceiling, while others responded that such
borrowing would violate the separation of powers and therefore that the
president should refuse to spend appropriated funds.

This Article analyzes the choice the president nearly faced in
summer 2011, and which he or a successor may yet face, as a “trilemma”
offering three unconstitutional options: ignore the debt ceiling
and unilaterally issue new bonds, thus usurping Congress’s borrowing
power; unilaterally raise taxes, thus usurping Congress’s taxing power;
or unilaterally cut spending, thus usurping Congress’s spending power.
We argue that the president should choose the “least unconstitutional”
course—here, ignoring the debt ceiling. We argue further, though more
tentatively, that if the bond markets would render such debt inadequate
to close the gap, the president should unilaterally increase taxes rather
than cut spending. We then use the debt ceiling impasse to develop
general criteria for political actors to choose among unconstitutional options.

We emphasize three principles derived from a famous speech by
President Lincoln: 1) minimize the unconstitutional assumption of
power; 2) minimize sub-constitutional harm; and 3) preserve, to the extent
possible, the ability of other actors to undo or remedy constitutional


In the spring of 2011, federal officials announced that, at some point
later in the year, the federal government would be unable to meet all of
its obligations unless the federal debt ceiling was raised. There was no
economic problem. Interest rates on U.S. Treasury bills were close to
zero percent, and the government could readily issue new debt to cover
its expenses, if only Congress would go through the formal process of
raising the debt ceiling to conform with the budget that it itself had then
only recently approved. There was a political problem, however.

Expressing concern about long-term fiscal deficits, Republicans in
Congress—especially those allied with the Tea Party movement—insisted
on a dollar of current spending cuts for every dollar increase in the debt
ceiling. Even as Keynesian economists warned of the dangers of premature
austerity, Democrats, including President Barack Obama, accepted
the Republican view that deficit reduction was imperative, but they insisted
that increased tax revenues had to be part of the formula for
achieving that goal. A standoff ensued.

As the day of reckoning approached with no deal in place, some observers
advanced a creative solution. Section 4 of the Fourteenth
Amendment, they noted, forbids the questioning of “[t]he validity of the
public debt of the United States,” and therefore, they argued, the debt
ceiling is unconstitutional insofar as it forbids the federal government
from honoring its existing financial commitments. Accordingly, these
observers contended that in the event that Congress and the President
failed to reach an agreement, the President would be authorized, or
perhaps even constitutionally obligated, to simply ignore the debt ceiling.
This proposed gambit was quickly dubbed the “nuclear option,”
and it garnered support from some prominent politicians, including
former President Bill Clinton.

The nuclear option had its own problems, however. For one thing, it
could backfire. As a hedge against the possibility that the government
would later default on debt issued by a president acting without congressional
authorization, bond purchasers might demand very high rates of
interest for the “radioactive” bonds, thus destabilizing rather than calming
financial markets. But even if the president’s unilateral authorization
of new debt would pacify the markets, it would apparently avoid a
violation of Section 4 of the Fourteenth Amendment only by violating
the separation of powers. After all, Article I of the United States
Constitution gives to Congress, not the president, the power “to borrow
Money on the credit of the United States.”

Thus, Treasury Secretary Timothy Geithner quickly announced that
the Administration would not rely on the Section 4 nuclear option. Perhaps
that was simply a ploy to increase pressure on Congress to strike a
deal. If so, it worked, because at the eleventh hour Congress did indeed
pass legislation raising the debt ceiling and punting to a newly created
bipartisan congressional “super-committee” the question of how to
achieve the deficit reduction that was also mandated by the legislation.

And we know how that turned out. The Sequester.

In principle this is not a default, as in an insolvency. As is obvious to anybody, a government that can print the medium of its debt cannot default. This is a choice by the government not to pay, if it comes to that.

The president could in theory engage with the Fed to buy additional Treasury securities and add them to the Fed's already enormous balance sheet. This would be tantamount to actually printing money, and except for the accounting of it, would be very much like the avenue prescribed by the MMTers. Central banks buying their government's debts has not had a good history, but it is do-able, and is actually being done right now.

Now to the Demand Side Perspective
in honor of our 600th episode, depending on how you count them.

The business cycle, of expansion, peak, recession, trough, recovery is a function of investment. This is the Keynesian view of John Maynard Keynes, as in the General Theory and the so-called Response to Viner in the Quarterly Journal of Economics that was Keynes' most significant defense of the General Theory.

Investment produces growth through the multiplier effect, where multiples of the initial investment are created in real economic activity -- in employment and incomes -- as determined by the propensity to consume.

Also, we note, investment goods typically involve higher wages than mundane consumption goods.

Business investment is affected by: (1) the interest rate, (2) prospective return on the investment, and (3) uncertainty.

The government can employ people in non-consumption industries, and create the value from which borrowing is paid off. It can produce high-value investment goods -- infrastructure, physical and social, and high-level wages.

Government is not beset by uncertainty over potential profits. Thus the condition of uncertainty which sometimes paralyzes private investment does not need to apply. Government's profits are embedded in the economy: better roads, education, infrastructure that is targeted toward adaptation to climate change, all produce incomes, savings, value to business and households.

The basic condition of stagnation and decline is one without investment, where all workers are engaged in the consumption goods industries. Since it does not take all workers to meet all demand -- as it fall short by the amount of savings, savings being the portion not consumed -- wages sag, prospective profits decline, what investment there is declines.

Leon Keyserling, chief economist to Harry Truman, identified this the need for investment to absorb desired savings.

Some version of this model is accepted by all economists with any success at forecasting or even describing what has happened. Of course, a large minority of economists are completely at sea, still holding on to a conviction that the economy will adjust naturally if the government will get out of the way, that no policy is good policy, and that employment and production return to equilibrium by themselves. Equilibrium analysis for some reason has not been laughed out of town.

The focus for the so-called Keynesians of this day has indeed been on investment, spurring it through ever lower interest rates and ever more generous tax benefits to business. We call them "so-called Keynesians" when one of Keynes' closest collaborators Joan Robinson referred to them with the gentle title of "bastard Keynesians." The Keynesians of the private investment only, interest rate rules all, tax cuts as stimulus school were not fathered by John Maynard. They do not have the genes of uncertainty, money, or debt deflation, nor the all-important primacy of demand. It is a kind of Keynesianism for business.

The zero lower bound school led by Paul Krugman and Ben Bernanke imagines there is an interest rate, even if it is negative, which will spur recovery. Both acknowledge the need for fiscal action, but here it is imagined at least by some that tax cuts are as good as investment.

Yes, Keynes spent a lot of ink on the link between the interest rate and the prospective return on investment. But he also pointed to the primacy of uncertainty, and he referred to the financial markets as a casino -- not the avenue to recovery.

Uncertainty can be understood not as a risk assessment, but as what weight do you give your risk assessment. In bad times, entrepreneurs will not pull the trigger on projects with the same probability of success that in good times will get the go-ahead. The same information is given less weight in times of high uncertainty.

The interest rate and the tax benefits are exploited by business to the extent they can be, but do not affect real investment to any great degree. See now that corporations are making record profits, but they do not invest.

Government can act in times of uncertainty. They don't when they are captured by the corporations and by the crackpots.

Rich People Just Care Less
The Great Divide
The Great Divide is a series about inequality.

Turning a blind eye. Giving someone the cold shoulder. Looking down on people. Seeing right through them.

These metaphors for condescending or dismissive behavior are more than just descriptive. They suggest, to a surprisingly accurate extent, the social distance between those with greater power and those with less — a distance that goes beyond the realm of interpersonal interactions and may exacerbate the soaring inequality in the United States.

A growing body of recent research shows that people with the most social power pay scant attention to those with little such power. This tuning out has been observed, for instance, with strangers in a mere five-minute get-acquainted session, where the more powerful person shows fewer signals of paying attention, like nodding or laughing. Higher-status people are also more likely to express disregard, through facial expressions, and are more likely to take over the conversation and interrupt or look past the other speaker.

Bringing the micropolitics of interpersonal attention to the understanding of social power, researchers are suggesting, has implications for public policy.

Of course, in any society, social power is relative; any of us may be higher or lower in a given interaction, and the research shows the effect still prevails. Though the more powerful pay less attention to us than we do to them, in other situations we are relatively higher on the totem pole of status — and we, too, tend to pay less attention to those a rung or two down.

A prerequisite to empathy is simply paying attention to the person in pain. In 2008, social psychologists from the University of Amsterdam and the University of California, Berkeley, studied pairs of strangers telling one another about difficulties they had been through, like a divorce or death of a loved one. The researchers found that the differential expressed itself in the playing down of suffering. The more powerful were less compassionate toward the hardships described by the less powerful.

Dacher Keltner, a professor of psychology at Berkeley, and Michael W. Kraus, an assistant professor of psychology at the University of Illinois, Urbana-Champaign, have done much of the research on social power and the attention deficit.

Mr. Keltner suggests that, in general, we focus the most on those we value most. While the wealthy can hire help, those with few material assets are more likely to value their social assets: like the neighbor who will keep an eye on your child from the time she gets home from school until the time you get home from work. The financial difference ends up creating a behavioral difference. Poor people are better attuned to interpersonal relations — with those of the same strata, and the more powerful — than the rich are, because they have to be.

While Mr. Keltner’s research finds that the poor, compared with the wealthy, have keenly attuned interpersonal attention in all directions, in general, those with the most power in society seem to pay particularly little attention to those with the least power. To be sure, high-status people do attend to those of equal rank — but not as well as those low of status do.

This has profound implications for societal behavior and government policy. Tuning in to the needs and feelings of another person is a prerequisite to empathy, which in turn can lead to understanding, concern and, if the circumstances are right, compassionate action.

In politics, readily dismissing inconvenient people can easily extend to dismissing inconvenient truths about them. The insistence by some House Republicans in Congress on cutting financing for food stamps and impeding the implementation of Obamacare, which would allow patients, including those with pre-existing health conditions, to obtain and pay for insurance coverage, may stem in part from the empathy gap. As political scientists have noted, redistricting and gerrymandering have led to the creation of more and more safe districts, in which elected officials don’t even have to encounter many voters from the rival party, much less empathize with them.

Social distance makes it all the easier to focus on small differences between groups and to put a negative spin on the ways of others and a positive spin on our own.

Freud called this “the narcissism of minor differences,” a theme repeated by Vamik D. Volkan, an emeritus professor of psychiatry at the University of Virginia, who was born in Cyprus to Turkish parents. Dr. Volkan remembers hearing as a small boy awful things about the hated Greek Cypriots — who, he points out, actually share many similarities with Turkish Cypriots. Yet for decades their modest-size island has been politically divided, which exacerbates the problem by letting prejudicial myths flourish.

In contrast, extensive interpersonal contact counteracts biases by letting people from hostile groups get to know one another as individuals and even friends. Thomas F. Pettigrew, a research professor of social psychology at the University of California, Santa Cruz, analyzed more than 500 studies on intergroup contact. Mr. Pettigrew, who was born in Virginia in 1931 and lived there until going to Harvard for graduate school, told me in an e-mail that it was the “the rampant racism in the Virginia of my childhood” that led him to study prejudice.

In his research, he found that even in areas where ethnic groups were in conflict and viewed one another through lenses of negative stereotypes, individuals who had close friends within the other group exhibited little or no such prejudice. They seemed to realize the many ways those demonized “others” were “just like me.” Whether such friendly social contact would overcome the divide between those with more and less social and economic power was not studied, but I suspect it would help.

Since the 1970s, the gap between the rich and everyone else has skyrocketed. Income inequality is at its highest level in a century. This widening gulf between the haves and have-less troubles me, but not for the obvious reasons. Apart from the financial inequities, I fear the expansion of an entirely different gap, caused by the inability to see oneself in a less advantaged person’s shoes. Reducing the economic gap may be impossible without also addressing the gap in empathy.

Daniel Goleman, a psychologist, is the author of “Emotional Intelligence” and, most recently, “Focus: The Hidden Driver of Excellence.”

• The reason the Republicans shutdown the government is an attempt by "conservative" groups to "defund Obamacare". From the NY Times: A Federal Budget Crisis Months in the Planning
Shortly after President Obama started his second term, a loose-knit coalition of conservative activists led by former Attorney General Edwin Meese III gathered in the capital to plot strategy. ...

Out of that session, held one morning in a location the members insist on keeping secret, came a little-noticed “blueprint to defunding Obamacare,” signed by Mr. Meese and leaders of more than three dozen conservative groups.

It articulated a take-no-prisoners legislative strategy that had long percolated in conservative circles: that Republicans could derail the health care overhaul if conservative lawmakers were willing to push fellow Republicans — including their cautious leaders — into cutting off financing for the entire federal government.

“We felt very strongly at the start of this year that the House needed to use the power of the purse,” said one coalition member ...

Last week the country witnessed the fallout from that strategy: a standoff that has shuttered much of the federal bureaucracy and unsettled the nation.
• This is a radical approach to public policy and it is Not Gonna Happen.

• All of the furloughed federal workers will be paid in full for lost pay during the shutdown. The House passed this bill on Saturday by a 407-0 vote. So workers will be paid for not working.

• Most defense workers have been recalled. From the NY Times: Hagel Recalls Most Defense Department Workers
Defense Secretary Chuck Hagel made a surprise announcement on Saturday that he would recall next week almost all of the 400,000 civilian employees of the Defense Department who had been sent home when the government shut down.

Mr. Hagel said the decision that “most D.O.D. civilians” would now be exempted from furloughs came after Pentagon and Justice Department lawyers interpreted a budget law passed just before the shutdown to include a larger number of workers.
• Congress will pay-the-bills (aka raise the "debt ceiling"). This is not negotiable. Treasury believes they will be low on funds by October 17th.

• Monday, October 14th is Columbus Day (A Federal holiday), and the week of October 14th through October 18th is a "Constituent Work Week" (aka recess). The current schedule is to the have no votes after 3 PM ET on Friday October 11th, so Congress can leave Washington Friday night. It is very unlikely that Congress will leave town that week without agreeing to "pay the bills".

• The bottom line is: 1) the shutdown was caused by groups making non-negotiable demands, 2) the shutdown will be expensive, and my guess is 3) the shutdown will probably end before Congress goes on recess.

A Federal Budget Crisis Months in the Planning

Michael Stravato for The New York Times
"You are here because now is the single best time we have to defund Obamacare. This is a fight we can win." SENATOR TED CRUZ, speaking in August to a Heritage Action gathering in Dallas
Published: October 5, 2013

WASHINGTON — Shortly after President Obama started his second term, a loose-knit coalition of conservative activists led by former Attorney General Edwin Meese III gathered in the capital to plot strategy. Their push to repeal Mr. Obama’s health care law was going nowhere, and they desperately needed a new plan.

Out of that session, held one morning in a location the members insist on keeping secret, came a little-noticed “blueprint to defunding Obamacare,” signed by Mr. Meese and leaders of more than three dozen conservative groups.

It articulated a take-no-prisoners legislative strategy that had long percolated in conservative circles: that Republicans could derail the health care overhaul if conservative lawmakers were willing to push fellow Republicans — including their cautious leaders — into cutting off financing for the entire federal government.

“We felt very strongly at the start of this year that the House needed to use the power of the purse,” said one coalition member, Michael A. Needham, who runs Heritage Action for America, the political arm of the Heritage Foundation. “At least at Heritage Action, we felt very strongly from the start that this was a fight that we were going to pick.”

Last week the country witnessed the fallout from that strategy: a standoff that has shuttered much of the federal bureaucracy and unsettled the nation.

To many Americans, the shutdown came out of nowhere. But interviews with a wide array of conservatives show that the confrontation that precipitated the crisis was the outgrowth of a long-running effort to undo the law, the Affordable Care Act, since its passage in 2010 — waged by a galaxy of conservative groups with more money, organized tactics and interconnections than is commonly known.

With polls showing Americans deeply divided over the law, conservatives believe that the public is behind them. Although the law’s opponents say that shutting down the government was not their objective, the activists anticipated that a shutdown could occur — and worked with members of the Tea Party caucus in Congress who were excited about drawing a red line against a law they despise.

A defunding “tool kit” created in early September included talking points for the question, “What happens when you shut down the government and you are blamed for it?” The suggested answer was the one House Republicans give today: “We are simply calling to fund the entire government except for the Affordable Care Act/Obamacare.”

The current budget brinkmanship is just the latest development in a well-financed, broad-based assault on the health law, Mr. Obama’s signature legislative initiative. Groups like Tea Party Patriots, Americans for Prosperity and FreedomWorks are all immersed in the fight, as is Club for Growth, a business-backed nonprofit organization. Some, like Generation Opportunity and Young Americans for Liberty, both aimed at young adults, are upstarts. Heritage Action is new, too, founded in 2010 to advance the policy prescriptions of its sister group, the Heritage Foundation.

The billionaire Koch brothers, Charles and David, have been deeply involved with financing the overall effort. A group linked to the Kochs, Freedom Partners Chamber of Commerce, disbursed more than $200 million last year to nonprofit organizations involved in the fight. Included was $5 million to Generation Opportunity, which created a buzz last month with an Internet advertisement showing a menacing Uncle Sam figure popping up between a woman’s legs during a gynecological exam.

The groups have also sought to pressure vulnerable Republican members of Congress with scorecards keeping track of their health care votes; have burned faux “Obamacare cards” on college campuses; and have distributed scripts for phone calls to Congressional offices, sample letters to editors and Twitter and Facebook offerings for followers to present as their own.

One sample Twitter offering — “Obamacare is a train wreck” — is a common refrain for Speaker John A. Boehner.

As the defunding movement picked up steam among outside advocates, Republicans who sounded tepid became targets. The Senate Conservatives Fund, a political action committee dedicated to “electing true conservatives,” ran radio advertisements against three Republican incumbents.

Heritage Action ran critical Internet advertisements in the districts of 100 Republican lawmakers who had failed to sign a letter by a North Carolina freshman, Representative Mark Meadows, urging Mr. Boehner to take up the defunding cause.

“They’ve been hugely influential,” said David Wasserman, who tracks House races for the nonpartisan Cook Political Report. “When else in our history has a freshman member of Congress from North Carolina been able to round up a gang of 80 that’s essentially ground the government to a halt?”

On Capitol Hill, the advocates found willing partners in Tea Party conservatives, who have repeatedly threatened to shut down the government if they do not get their way on spending issues. This time they said they were so alarmed by the health law that they were willing to risk a shutdown over it. (“This is exactly what the public wants,” Representative Michele Bachmann of Minnesota, founder of the House Tea Party Caucus, said on the eve of the shutdown.)

Despite Mrs. Bachmann’s comments, not all of the groups have been on board with the defunding campaign. Some, like the Koch-financed Americans for Prosperity, which spent $5.5 million on health care television advertisements over the past three months, are more focused on sowing public doubts about the law. But all have a common goal, which is to cripple a measure that Senator Ted Cruz, a Texas Republican and leader of the defunding effort, has likened to a horror movie.
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“We view this as a long-term effort,” said Tim Phillips, the president of Americans for Prosperity. He said his group expected to spend “tens of millions” of dollars on a “multifront effort” that includes working to prevent states from expanding Medicaid under the law. The group’s goal is not to defund the law.

“We want to see this law repealed,” Mr. Phillips said.

A Familiar Tactic

The crowd was raucous at the Hilton Anatole, just north of downtown Dallas, when Mr. Needham’s group, Heritage Action, arrived on a Tuesday in August for the second stop on a nine-city “Defund Obamacare Town Hall Tour.” Nearly 1,000 people turned out to hear two stars of the Tea Party movement: Mr. Cruz, and Jim DeMint, a former South Carolina senator who runs the Heritage Foundation.

“You’re here because now is the single best time we have to defund Obamacare,” declared Mr. Cruz, who would go on to rail against the law on the Senate floor in September with a monologue that ran for 21 hours. “This is a fight we can win.”

Although Mr. Cruz is new to the Senate, the tactic of defunding in Washington is not. For years, Congress has banned the use of certain federal money to pay for abortions, except in the case of incest and rape, by attaching the so-called Hyde Amendment to spending bills.

After the health law passed in 2010, Todd Tiahrt, then a Republican congressman from Kansas, proposed defunding bits and pieces of it. He said he spoke to Mr. Boehner’s staff about the idea while the Supreme Court, which upheld the central provision, was weighing the law’s constitutionality.

“There just wasn’t the appetite for it at the time,” Mr. Tiahrt said in an interview. “They thought, we don’t need to worry about it because the Supreme Court will strike it down.”

But the idea of using the appropriations process to defund an entire federal program, particularly one as far-reaching as the health care overhaul, raised the stakes considerably. In an interview, Mr. DeMint, who left the Senate to join the Heritage Foundation in January, said he had been thinking about it since the law’s passage, in part because Republican leaders were not more aggressive.

“They’ve been through a series of C.R.s and debt limits,” Mr. DeMint said, referring to continuing resolutions on spending, “and all the time there was discussion of ‘O.K., we’re not going to fight the Obamacare fight, we’ll do it next time.’ The conservatives who ran in 2010 promising to repeal it kept hearing, ‘This is not the right time to fight this battle.’ ”

Mr. DeMint is hardly alone in his distaste for the health law, or his willingness to do something about it. In the three years since Mr. Obama signed the health measure, Tea Party-inspired groups have mobilized, aided by a financing network that continues to grow, both in its complexity and the sheer amount of money that flows through it.

A review of tax records, campaign finance reports and corporate filings shows that hundreds of millions of dollars have been raised and spent since 2012 by organizations, many of them loosely connected, leading opposition to the measure.

One of the biggest sources of conservative money is Freedom Partners, a tax-exempt “business league” that claims more than 200 members, each of whom pays at least $100,000 in dues. The group’s board is headed by a longtime executive of Koch Industries, the conglomerate run by the Koch brothers, who were among the original financiers of the Tea Party movement. The Kochs declined to comment.

While Freedom Partners has financed organizations that are pushing to defund the law, like Heritage Action and Tea Party Patriots, Freedom Partners has not advocated that. A spokesman for the group, James Davis, said it was more focused on “educating Americans around the country on the negative impacts of Obamacare.”

The largest recipient of Freedom Partners cash — about $115 million — was the Center to Protect Patient Rights, according to the groups’ latest tax filings. Run by a political consultant with ties to the Kochs and listing an Arizona post office box for its address, the center appears to be little more than a clearinghouse for donations to still more groups, including American Commitment and the 60 Plus Association, both ardent foes of the health care law.

American Commitment and 60 Plus were among a handful of groups calling themselves the “Repeal Coalition” that sent a letter in August urging Republican leaders in the House and the Senate to insist “at a minimum” in a one-year delay of carrying out the health care law as part of any budget deal. Another group, the Conservative 50 Plus Alliance, delivered a defunding petition with 68,700 signatures to the Senate.

House Republican Efforts to Repeal or Weaken the Health Care Law

The Cost of the Shutdown by the Numbers

News Analysis: The Benefits of Intransigence (October 6, 2013)
Related in Opinion

Paul Krugman: The Boehner Bunglers (October 7, 2013)
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In the fight to shape public opinion, conservatives face well-organized liberal foes. Enroll America, a nonprofit group allied with the Obama White House, is waging a campaign to persuade millions of the uninsured to buy coverage. The law’s supporters are also getting huge assistance from the insurance industry, which is expected to spend $1 billion on advertising to help sell its plans on the exchanges.

“It is David versus Goliath,” said Mr. Phillips of Americans for Prosperity.

But conservatives are finding that with relatively small advertising buys, they can make a splash. Generation Opportunity, the youth-oriented outfit behind the “Creepy Uncle Sam” ads, is spending $750,000 on that effort, aimed at dissuading young people — a cohort critical to the success of the health care overhaul — from signing up for insurance under the new law.

The group receives substantial backing from Freedom Partners and appears ready to expand. Recently, Generation Opportunity moved into spacious new offices in Arlington, Va., where exposed ductwork, Ikea chairs and a Ping-Pong table give off the feel of a Silicon Valley start-up.

Its executive director, Evan Feinberg, a 29-year-old former Capitol Hill aide and onetime instructor for a leadership institute founded by Charles Koch, said there would be more Uncle Sam ads, coupled with college campus visits, this fall. Two other groups, FreedomWorks, with its “Burn Your Obamacare Card” protests, and Young Americans for Liberty, are also running campus events.

“A lot of folks have asked us, ‘Are we trying to sabotage the law?’ ” Mr. Feinberg said in an interview last week. His answer echoes the Freedom Partners philosophy: “Our goal is to educate and empower young people.”

Critical Timing

But many on the Republican right wanted to do more.

Mr. Meese’s low-profile coalition, the Conservative Action Project, which seeks to find common ground among leaders of an array of fiscally and socially conservative groups, was looking ahead to last Tuesday, when the new online health insurance marketplaces, called exchanges, were set to open. If the law took full effect as planned, many conservatives feared, it would be nearly impossible to repeal — even if a Republican president were elected in 2016.

“I think people realized that with the imminent beginning of Obamacare, that this was a critical time to make every effort to stop something,” Mr. Meese said in an interview. (He has since stepped down as the coalition’s chairman and has been succeeded by David McIntosh, a former congressman from Indiana.)

The defunding idea, Mr. Meese said, was “a logical strategy.” The idea drew broad support. Fiscal conservatives like Chris Chocola, the president of the Club for Growth, signed on to the blueprint. So did social and religious conservatives, like the Rev. Lou Sheldon of the Traditional Values Coalition.

The document set a target date: March 27, when a continuing resolution allowing the government to function was to expire. Its message was direct: “Conservatives should not approve a C.R. unless it defunds Obamacare.”

But the March date came and went without a defunding struggle. In the Senate, Mr. Cruz and Senator Mike Lee, a Utah Republican, talked up the defunding idea, but it went nowhere in the Democratic-controlled chamber. In the House, Mr. Boehner wanted to concentrate instead on locking in the across-the-board budget cuts known as sequestration, and Tea Party lawmakers followed his lead. Outside advocates were unhappy but held their fire.

“We didn’t cause any trouble,” Mr. Chocola said.

Yet by summer, with an August recess looming and another temporary spending bill expiring at the end of September, the groups were done waiting.

(Page 4 of 4)

“I remember talking to reporters at the end of July, and they said, ‘This didn’t go anywhere,’ ” Mr. Needham recalled. “What all of us felt at the time was, this was never going to be a strategy that was going to win inside the Beltway. It was going to be a strategy where, during August, people would go home and hear from their constituents, saying: ‘You pledged to do everything you could to stop Obamacare. Will you defund it?’ ”

House Republican Efforts to Repeal or Weaken the Health Care Law

The Cost of the Shutdown by the Numbers

News Analysis: The Benefits of Intransigence (October 6, 2013)
Related in Opinion

Paul Krugman: The Boehner Bunglers (October 7, 2013)
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Heritage Action, which has trained 6,000 people it calls sentinels around the country, sent them to open meetings and other events to confront their elected representatives. Its “Defund Obamacare Town Hall Tour,” which began in Fayetteville, Ark., on Aug. 19 and ended 10 days later in Wilmington, Del., drew hundreds at every stop.

The Senate Conservatives Fund, led by Mr. DeMint when he was in the Senate, put up a Web site in July called dontfundobamacare.com and ran television ads featuring Mr. Cruz and Mr. Lee urging people to tell their representatives not to fund the law.

When Senator Richard M. Burr, a North Carolina Republican, told a reporter that defunding the law was “the dumbest idea I’ve ever heard,” the fund bought a radio ad to attack him. Two other Republican senators up for re-election in 2014, Lamar Alexander of Tennessee and Lindsey Graham of South Carolina, were also targeted. Both face Tea Party challengers.

In Washington, Tea Party Patriots, which created the defunding tool kit, set up a Web site, exemptamerica.com, to promote a rally last month showcasing many of the Republicans in Congress whom Democrats — and a number of fellow Republicans — say are most responsible for the shutdown.

While conservatives believe that the public will back them on defunding, a recent poll by the Kaiser Family Foundation found that a majority — 57 percent — disapproves of cutting off funding as a way to stop the law.

Last week, with the health care exchanges open for business and a number of prominent Republicans complaining that the “Defund Obamacare” strategy was politically damaging and pointless, Mr. Needham of Heritage Action said he felt good about what the groups had accomplished.

“It really was a groundswell,” he said, “that changed Washington from the outside in.”

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