The Republicans' disastrous performance last week to fill an open New York congressional seat was nirvana for Democrats. It was also a major shock to the party of Lincoln, which had held this Republican seat in a Democratic state for nearly 60 years.

Yes, part of the problem was a tea party candidate who siphoned off 9 percent of the vote, largely from the Republican candidate. The other problem, in my opinion, was that the election ultimately became a vote — a referendum — on Republican Paul Ryan's Medicare reform proposal.

The plan

The victorious Democrats now have a strategy for the upcoming, and extremely important, 2012 elections. The plan? Do nothing.

Talk as the president does about the need for fiscal sanity in the nation's capital, without providing details. Attack any specific proposal by the Republicans. Raise fear levels in older Americans.

Ironically, the "do nothing" approach now in vogue for the Democrats was job one for the Republicans in 2009 and 2010. They (rightfully, in my view) attacked the president's health care program as enormously costly and top-down driven … exactly what we don't need. The Republicans provided few specifics, and it worked well last November.

The two-party system is broken. It is all based on search and destroy — attack any possibly courageous proposal by the opposition to address vital long-term issues faced by this nation.

How pathetic! Such a disservice by those we choose to address American issues.

A package deal

What the Medicare debacle in New York makes very clear is that piecemeal approaches to fiscal sanity will not work. Medicare reform, while necessary, can't happen because the other side scares people enough to severely penalize that party at the polls.

It doesn't matter whether the issue is Medicare, Social Security, Medicaid, the questionable "need" for tens of thousands of employees and billions of dollars in spending at the Department of Education or the Department of Energy, or any other entitlement program or fixture of government. The only way to reform government, the only way to get a handle on devastating long-term budget deficits, is a "package deal" — a comprehensive, all-inclusive, all-encompassing revision to government spending.

A little presidential leadership would also be nice.

For the moment

The current major issue is the required increase in the nation's debt ceiling. Something in the way of agreement between the Democratic administration/Senate and the Republican House must be worked out prior to Aug. 2.

Perhaps they will agree to a vague proposal to sharply reduce annual budget deficits to a more "affordable" level by 2015 or so. Both sides would then campaign over the next 17 months as to the best way to achieve such a target. The Democrats would campaign on nebulous reductions in some spending programs and sizable tax increases on "the rich" — i.e. those making more than $200,000 annually.

The Republicans would offer their view that entitlement reform must be the key, with simultaneous modifications to the three major entitlement programs in order to keep them viable for years to come. As I have pointed out frequently, if they would not talk about "spending cuts" in entitlement programs (which scare people) but talk about "slowing future growth rates of spending" in these programs, the job would be much easier.

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An eventual and desired package deal would also include reductions in future defense spending and (in order to get a deal done) some modest and limited tax increases. Barring a major political sweep by either party in 2012, neither side can have it exclusively their way.

Republicans will broaden their message to focus more on the desirability of boosting economic growth and job creation to simultaneously address a struggling populace and the deficit issue. They must also not lose sight of the need to address entitlements.

The media and politicians always suggest that the upcoming election is one of the most critical in the nation's history. With the issue of horrific and prosperity-threatening budget deficits now the norm, that statement is as true as ever.

Jeff Thredgold is the chief economist for Zions Bank and founder of Thredgold Economic Associates, a professional speaking and economic consulting firm. Visit