Nov
21
By Paolo von Schirach
November 21, 2011
WASHINGTON – The Congressional ad hoc “Super Committee” co-chaired by Rep. Jeb Hensarling, (R. Texas), and Senator Patty Murray, (D. Washington), failed in its mission to produce an agreement on any mix of spending cuts and revenue increases that would have resulted in total savings of at least 1.3 trillion over ten years. The bar was not exceedingly high. Cutting more than one trillion sounds like a lot of money; but remember the savings were supposed to be spread over 10 years. It was doable. But, if so, why did they fail to reach a compromise?
No price for failure
For two reasons. First of all, no immediate political price to pay. Getting no deal does not have catastrophic consequences today. Sure enough we know that, absent a compromise among the ”Super Committee” members, the law provides for automatic across the board cuts that will achieve the same savings. This looks ominous, especially since about half the cuts will fall upon the Pentagon. Except that the big cuts will kick in only starting in 2013. And this means that the political system will have an entire year to figure how to dodge this bullet. Not to mention that between now and the so called “sequester” there is a critical national election. Who knows what will happen after November 2012.
Political incentive not to compromise
But the real reason for not reaching a deal even on a modest down payment on deficit reduction is politics. Very simply, the Democrats did not want meaningful spending cuts and the Republicans would not accept meaningful tax increases. A compromise would have needed having a bit of both. But in this ideologically charged climate the last thing elected officials want is to look as if they deviated from party orthodoxy. Therefore, saying no to a compromise was easy. A deal would have tainted both parties without giving anybody reason to celebrate a major success, as this deal would not have transformed federal spending. So both sides concluded that a modest package was not worth the certainty of facing a political revolt from the rank of file. Hence this totally predictable failure.
More debt is bad news, but not right now
Again, the option to do nothing was an easy choice, because there appears to be no immediate political price for failure. Of course, neither the bond markets nor the rating agencies like America piling up more debt. And all observers are nervous about a trajectory that, so far, indicates more spending and more debt going forward. Clearly America is on an unsustainable path. But politicians know that we have yet to reach the edge of the abyss. As bad as things are over here, this is not Greece and not even Italy. As someone put it, “Compared to Europe, America is the cleanest dirty shirt”. Some badge of honor.
Nothing will be done in 2012
So, were do we go from here? We go nowhere. There will be no significant agreement on anything in 2012, an election year. Certainly no “Grand Bargain”, no major compromise on reforming federal spedning between President Obama and a Republican Party that will do anything to defeat him next November. Why hand Obama a major policy success –true spending reform stabilizing America’s public accounts– that he will use to get re-elected?
And if denying Obama this victory means allowing the further deterioration of the fiscal outlook, who cares? As I said, politicians whose historic horizons do not stretch beyond the next elections, know or in any event hope that nothing major will happen between now and the November 2012 vote. So, fight Obama now and worry about the national debt later.
Clarity on spending reform after 2012 vote?
In this politically charged environment the only hope is in a resolution of this impasse through a fundamental political realignment after the 2012 elections. But I would not count on it. Granted, Obama is unpopular. But there is no Republican star. there is no one in the Republican Party who can appear as a unifying national leader.
If the Republicans win, but without a spectacular landslide tthat would have to include a clear mandate to reform the welfare state, a new president will still have to fight against powerful unions and other Democratic constituencies that resent growing inequalities and cry out for shared sacrifices –read higher taxes for the wealthy– that the Republicans are ideologically opposed to. Yet, the fact is that there is no way to fix Federal spending without cutting entitlements and raising some taxes. But if any cuts without revenue increases will be presented by a vociferous Democratic Party opposition as a war against the poor, this spells disaster and new levels of national disunity.
Obama re-elected, country still split
In a different scenario, let’s imagine that Obama gets re-elected, even if by a narrow margin, next November. He will have to go heavily “negative” against his Republican opponent, because he cannot possibly run defending his mediocre to bad record. He will be forced to attack his opponent personally. He will have to portray him as out of touch and morally reprehensible, and thus unelectable.
So, let’s assume an Obama victory by a small margin after a vitriolic campaign in which he managed to vilify his opponent, while the Republicans still retain control of the House , while possibly gaining the Senate. (There are many more Democratic Senate seats in play in 2012. The odds of losing at least three or four are high). In this scenario, it is good bye to governing America. Obama will get zero cooperation from a Republican Congress after having successfully depicted his Republican opponent as something akin to the anti-Christ.
Extreme scenario? Not really. With American politics already this vitriolic, either party winning by a narrow margin will only intensify existing divisions. So, to all those who hope that after the November 2012 elections we shall have a clear new majority and thus smooth sailing towards a decent spending reform plan, think again. It may get much worse.
Print This Post