The “Debt Commission” Has Gone Home

WASHINGTON – I recently expressed unconditional praise for Erskine Bowles and Alan Simpson, the two gutsy co-chairs of the “Debt Commission” that just completed its work recommending a new fiscal course for America. They held their meetings. They interviewed witnesses. They reviewed the evidence. And they sounded the alarm.

They did their very best to draw national attention on the impending national fiscal disaster. They cobbled together a decent, believable, enforceable “Plan”, comprising both significant spending cuts, including in the most critical and most expensive entitlement programs, and some revenue raising measures. They laced the whole thing with very sensible and quite frankly horribly overdue tax simplifications measures that may go a long way in encouraging investments and new enterprise in a dispirited America.

Let’s do something –right now

Most importantly, they said quite clearly that their “Plan” is not the end of the story. They said that this would be a concrete first step, a series of measures that would reverse the growth of spending and the consequent accumulation of more debt. However, even if we did what they recommend, if America is serious about getting out of the ditch, more action would have to follow. And this caveat really meant: “Let’s not quibble and get bogged down in dissecting all the minutiae. Plenty of time later on to fine tune and modify. But, for goodness sake, let’s “do something” –and let’s do it right now!

Give a signal to all who watch us

And doing something meaningful now will be interpreted, as it should, as a demonstration of seriousness. Action, as opposed to more debate, on the deficit and the debt will tell the world that America wants to go back to be an entrepreneurial society in which the state performs “some” important functions, as it should. But the role of the state as provider cannot be mindlessly extended to the point that the cost of borrowing to run unaffordable entitlement and other programs will choke the entire society.

This is an emergency

And the urgency to “do something” now stems from the recognition that things have already gotten to be so bad that this is now and should be recognized as a true national emergency. We are sleep walking into the abyss. The idea that we can have trillion dollar plus annual deficits, year after year, but somehow “we’ll manage”, is bordering on lunacy. No, unless a serious change will take place –and fast– we shall not manage. The fact that the US, for the time being, warts and all, is still the largest economy in the world, does not grant us immunity from eventual national bankruptcy, if spending keeps outpacing revenue.

The last time we had this conversation 200 billion deficits were enough to scare us

In contrast, let us remember that the last time we had a serious national debate on the national debt, during the Reagan administration, the worst scenario that could be presented to illustrate the gravity of the situation was of “200 billion dollar deficits every year, as far as the eye can see”. Even if we take into account that at the time 200 billion meant a lot more both in absolute terms and as a share of a then much smaller GDP, the contrast is stark. 20 years ago 200 billion deficits were considered a calamity. Today we have 1.3 trillion deficits and nobody really believes the time for action has come. Not quite yet, at any rate.

Half measures get us where Italy and Japan are: diminished countries

And again, even if we grudgingly take some half measures and escape bankruptcy, without however fixing the root problem of chronic overspending, a likely scenario is for America to become another Italy or another Japan, weak countries in which total debt is about or above 100 per cent of GDP, so burdened by heavy debt service obligations that they have no discretionary resources left to invest in anything bold or creative.

And this is the picture for countries that do not hold world leadership positions. For the United States to believe that it can carry on piling debt and continue to have the money to fund the strongest military power in the world is absolute nonsense. A super power heavily in debt will simply stop being a super power. And faster than you think.

Stop believing that public spending is a substitute for enterprise

And, if we needed more food for thought, we have also been reminded by members of the commission that fiscal weakness and eventual fiscal collapse is at the root of the downfall of most great countries. Basically, when you stop producing, while creating larger and larger expectations of open ended public largesse as a replacement of the fruits of individual enterprise, you are doomed. For a while this public spending, “magic elixir”, effect may work. But when you have eaten all your capital and you are down to eating your seed corn, then this is it. For America the question is:”how many more trillions in the red do we need to be so that the Washington elites start paying attention”?

So, all this has been said.

Disappointing outcome

And the results of all these stern warnings by Bowles and Simpson and of all the labor leading to the drafting and presentation of their “Plan”?

Well, quite frankly very disappointing –given what is at stake here. Sure enough, we can dissect the outcome of the “Debt Commission” and make the case that getting 11 votes out of 18 in favor of the “Plan” is not so bad. “Hey, look, this is more than a majority. In perennially gridlocked Washington, what more do you expect”?

A real consensus within the Commission would have signaled resolve

Well, allow me to be a contrarian. Even though it is true that many who voted against it still endorse several components of the “Plan”, this is really not good enough. If we all agree that the Bowles-Simpson Plan was just the first bite in a long process, then unanimity or quasi unanimity, after months and months of deliberations within the commission, would have been a reasonable political target for an agenda that would have been put forward not as the final solution for the debt issue but as the mere start of a political debate leading to concrete legislative action.

We needed a political “yes”

The point for voting “yes” for the package was not to endorse the definitive solution to our fiscal crisis, but to show to the Congress, to the president, to the Country and to the world at least the consensus among all the commission members as to the need for swift action. The signal would have been politically powerful, as it would have demonstrated unity of purpose among diverse commission members, representing a variety of constituencies. Liberal and conservative law makers, private sector and government, corporations and unions. In other words, by voting a resounding “yes” this small but symbolically representative body of credible Americans would have given a powerful political message to the Washington establishment.

A convincing “yes” would have forced president Obama to come out in the open

A resounding “yes” would have prevented president Obama from taking what seems now a predictable political cover, choosing for the time being a wait and see attitude, praising the “Debt Commission” without coming out and without taking a clear stand that –if bravery were the standard– could very well have become the defining issue of his presidency.

Indeed, the most we are getting now as White House endorsement of the “debt commission” work is: “To sustain growth in the medium and long term we need to face some difficult choice to curb runaway debt”. If this is your idea of a “call to arms” by the president of the United States, if this your vision of the chief executive of America getting in front and leading on a historic crisis, then this is execellent. I find it pitifully inadequate and a reflection of a lack of understanding of the true dimensions of the problem.

We had a chance and blew it

My larger point is that here we had and missed an opportunity for a small but representative band of Americans to go beyond posturing and demonstrate unity and resolve, signaling to all stakeholders the absolute imperative to start “doing something meaningful now” –however imperfect the plan may be. This would have been an opportunity to tell the world that America woke up and that it is finally getting serious about this national fiscal emergency.

So, in my judgment, with this lukewarm endorsement, (which goes short of the symbolically important threshold of at least 14 votes in favor in order to force an up or down vote in Congress), the opportunity to show real resolve among the commissioners came and went. Bowles and Simpson got warm applause, nice words and accolades from all, and now they go home.

Something will stick but difficult to imagine a strong momentum

Do not get me wrong. Their work is not entirely in vain. Something will linger, may be more than I think now. Some members of Congress will pick up pieces of the plan. But there is almost zero chance that it will be adopted as formulated. And –more to the point– there is zero chance for swift action that would give the world a convincing signal that now we are dead serious about taking care of this threat to the very foundations of this Republic.

The political message about the need for urgent action has been watered down

Let me say it again. The issue at this juncture was not about passing judgment on the ultimate wisdom of this or that individual component of the Plan put forward by the two co-chairs. The issue right now was supremely political. It was all about showing vision, guts and courage. In fairness, 9 members, plus the co-chairs, did. But, while this is significant, it is not enough. And so, the overall message, while generally a bit more positive than negative, got substantially watered down, so that the whole effort lost its momentum. Noticeable opposition to the agenda allows too many players to say: “Oh well; it is a good start. Now let me think about it some more. How about tweaking this and fine tuning that”?

Again, some commission members warned against this approach: “Do not let the perfect be the enemy of the good”.

The road ahead: more debate, more dilatory tactics

But this simple piece of advice did not stick. So, at the end of this laborious exercise, we have a mixed message that allows all players to say that: “Yes, in principle here are some good ideas and we should take them into serious consideration. But let’s not be too hasty, lest we do the wrong thing”. Well, this is one occasion in which more delay, even if we concede (and I do not) that there are good intentions behind it, can get us closer to a very unpleasant moment of reckoning.

Indeed, in the final deliberations of the commissions, some members mentioned Greece and Ireland, and Portugal and Spain and may be Italy as stark reminders of countries that were/are headed towards the abyss and kept looking the other way. “Do we Americans want to follow their lead”? –many wondered.

Did a distracted America pay any attention?

The end product of the “debt commission” got its share of media coverage. But this coverage took place within a context of a mindless and supremely distracted America in which these days the national news headlines are dominated by silly stuff such as debates on the appropriate level of intrusiveness on the part of airport security, by an obsession about gays in the military and by the statutory daily updates on whether or not Sarah Palin, the first marketable blend of media celebrity and reality show national politician, is really the front runner for the Republicans in 2012.

If we are –as we unfortunately are– at the point in which coverage about the disastrous consequences of the national debt is competing for attention in the news cycle with Sarah Palin’s daughter as a “Dancing with the Stars” contestant on a national TV show, (yes, celebrities daughters get to be celebrities as well), we are really in bad shape.

Hopefully we wake up and get serious

This frivolous national fixation on silly stuff may end –and I hope that it does. Still, regardless of the overall national inability (at least to date) to grasp the seriousness of our fiscal and economic predicament, we still owe an enormous debt of gratitude to Erskine Bowles and Alan Simpson. The two gutsy (former) Washington insiders showed us that there are still some real statesmen around.

To the two gentlemen I say: “Thank You”

As skeptical as I am as to our ability to see the light any time soon and forge a new consensus on spending, on the debt and on a taxation system that will be both fair and business friendly –if we indeed end up doing any of this, much of the credit will be owed to the work these two gentlemen just completed. Thanks to both of them.

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