Politicians Will Kick the Can Down the Road

July 6th, 2011 at 3:41 pm | 5 Comments |

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A senior Republican Senator calls for a short term debt deal of six months or so.

The House Republican Speaker doesn’t want that. Senate Majority Leader Reid opposes it.

The President rejects a short-term deal.

What is the path of least resistance?

Yes, a short-term debt deal to “buy time for real action.”

Most Members know the reality of the consequences of failure to raise the debt ceiling.  Various commentators, ranging from Ezra Klein of the Washington “Post” to Clive Crook of the “Financial Times” have weighed in.  Failure is a bad idea, if not an insane idea.

Most Members apparently agree that they don’t want to be tarred politically as one who brought chaos into markets and the American economy.

As a way to deflect criticism, some Congressmen have devised a public relations tool to protect incumbents, especially from Tea Party-based primary challenges.  It’s called “Cut, Cap, and Balance” (CCB).  It’s a pledge that allows signatories to say to their constituents, “Look, I support cutting spending, capping it at a certain percentage of Gross Domestic Product, and passage of a Balanced Budget Amendment to the Constitution.”  While apparently an earnest pledge, the document carries no legislative weight and is more a statement of general ideology than any hint that concrete policymaking will follow.

Finally, behind all the calls for meetings at the White House, resistance to revenue increases, or real reform of Medicare and other entitlements, remains this truth:  the majority of members of both chambers and both parties know that failure to increase the debt ceiling carries toxic political realities.  In private, this majority wants two things to happen: the debt ceiling to increase, but not with their “aye” vote.

Political cognitive dissonance almost always yields temporizing.  Or, in English, confused politicians usually choose the “easy” way out.  In this case, a six-month increase in the debt ceiling, off-set by “cuts” of about $1.1-1.2 trillion, and an enforcement mechanism with teeth, seems the easy way out.

Except.

A six-month extension of the debt ceiling might expire, let’s say, next February.  In late January, the Congressional Budget Office will release its annual report.  It will likely forecast trillion dollar deficits for at least a decade more.  In February, the President is supposed to issue his Fiscal Year 2013 budget recommendations.  A likely intense battle over another Continuing Resolution for Appropriations for FY12 will be in full throttle, or, if we are lucky, has just concluded.

Add to this, the need to extend the debt ceiling once again, and the inevitable vote on the expiring Bush tax cuts later in the year, and it doesn’t take too much foresight to see a truly constipated and dysfunctional Congress.   It is unclear how financial markets and companies will react to further evidence of silliness, but the risks increase daily.

Meanwhile, the President continues to “lead from behind.”  His call for a White House meeting tomorrow follows in this pattern.  His rhetoric bold, his actions remain clouded.  As he did during the health care debate in 2009-10, in immigration policy, in the CR11 conflict, the President simply proposes nothing concrete.  While this is frustrating to policymakers and analysts, let alone Republican members of the House and Senate, it carries the least political risk to the President.

After all, only three outcomes seem likely.  A deal will be made that includes tax increases and some entitlement reform.  A deal will be made that makes trivial changes in appropriated accounts and gains a six-month reprieve on a debt ceiling vote.  A deal will  be made after a   serious market hiccup and no fiscal reform of note.

In each case the President can emerge looking like “the adult.”  He blesses any bi-partisan deal made (thus spreading any political damage to all parties involved);  or he expresses deep disappointment and concern (thus painting his adversaries as irresponsible).

No, it isn’t leadership of any kind.  But, it may prove to be very smart short-term politics.  That is, it may be enough to keep him in office after November, 2012.

Americans laugh at Greece and the other PIIGS in Europe.  Yet, America’s federal establishment fears taking anything like the fiscal reform going on in Greece and other European nations.

Having the world’s reserve currency carries, as one French politician said years ago, “exorbitant privilege.”  And, that seems to include the privilege of fundamental fiscal irresponsibility.

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5 Comments so far ↓

  • D Furlano

    “Americans laugh at Greece and the other PIIGS in Europe. Yet, America’s federal establishment fears taking anything like the fiscal reform going on in Greece and other European nations.”

    How many times do people need to be told that the US is not like the EU union? How many freakin times?

  • armstp

    Actually, it is not “kicking the can down the road” when there really is no deficit and debt crisis. Sure the deficit and debt is temporarily high as a percentage of GDP, but it always creeps higher in times of recession. As the CBO estimates if nothing significant is done the deficit will be back close to normalized levels by 2014. There is no crisis because we can continue to service the debt with absolutely no problem. In terms of total debt per GDP, the U.S. is about middle of the pack compared to OECD countries. No big deal.

    There are long, let me say that again, long-term issues regarding social security and medicare that need to be dealt with, but better to deal with then over the next couple of years. The focus now should be on economic growth and jobs, not on the long-term problems of social security and medicare or the really no exisiting problems of the deficit and debt.

    To compare Greece to the U.S. is laughable and I am not sure what the EU in general is doing versus the U.S. that is so great. Seems like they are going through their TARP moment now (or two years later) in bailing-out their weaker members.

  • El Gipper

    Armstp,

    Correct, there isn’t a debt crisis. There’s a massive disagreement between Republicans and Democrats about the percentage of GDP that should be spent by the federal government. The Republicans realize that their best leverage in getting Democrats to cooperate in the reduction of government expenditures is to link increases in the debt limit with decreases in spending.

    If Democrats would repeal PPACA and convert Medicare into a means-tested, Medicaid-like program, then the Republicans would be forced to play ball on taxes. But Democrats cannot fathom the possibility that their entitlement program creations (SS and Medicare) have been made fiscally obsolete by the collapsing ratio of working taxpayers to entitlement recipients.

    The Republicans are under no obligation to sustain the Democrats’ welfare state pipe dream. Deficits and Debt Ceilings are mere talking points for Republicans. The real game is reducing the percentage of GDP going to the federal government.

    The Democrats are like the alcoholic who refuses to go into rehab, and who promises that after one more drink, he’ll think about it. Sorry, but Republicans are through with the David Brooks, David Frum, milquetoast acommodating model of governing according to the Democrat playbook. We’re taking the ball to a new stadium. It’s a new game, folks

    • D Furlano

      And as soon as the republicans drive the country into a real depression people will realize that conservatives stand for nothing more than consolidation of wealth and power for the top 1%.

      It’s a game to you but to the vast majority there is a different reality.

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