Boehner, Reid and McConnell Got a Deal To Raise the Debt Ceiling – An Unremarkable Spending Cuts Agreement That Changes Nothing Regarding The Direction Of US Spending – America Needs Serious Entitlement Reform – But The Politicians Will Procrastinate

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By Paolo von Schirach

August 1, 2011

WASHINGTON – And so, the last minute deal between Democrats and Republicans has been done. It yielded a rather underwhelming patchwork agreement for modest US spending cuts now, with a promise of more later, in exchange for raising the debt ceiling now and putting away the “debt issue” until after the 2012 election. I do not know what to make of the weeks and months of gyrations, false hopes, arguments and recriminations involving House Speaker Boehner, Senate Majority Leader Reid and President Barack Obama that finally gave us a totally unremarkable, modest arrangement that could have been hatched months ago. The deal says almost nothing about future US fiscal policies. But the long and wasteful way we got to it exposed systemic weaknesses of US political institutions. Weaknesses bordering on dysfunction.

No taxes

The only noticeable, if symbolic, feature is that the deal does not include tax increases. And so, one could consider this a Republican, Tea Party inspired, victory. They stood on principle and they won. They got the cuts without revenue increases. Big deal, really. For a country drowning in red ink, spending cuts around 2 trillion total over ten years are puny. Let’s assume that the Democrats might have succeeded to insert a few revenue increase measures. Would this have transformed the entire fiscal and economic outlook for America? Absolutely not. But it would have a been a symbolic victory for them.

Symbolic victories, revisited deals

So, this deal is mostly about political symbolism. Don’t get me wrong: cutting spending, even a little, is good. But when the cuts are so small and –please note this– all projected to take place into the future, experience about Washington ways invites prudence. As someone famously said long ago: “Nothing is ever settled in Washington“. Meaning by that that issues are revisited. Agreements are broken, or at the very least circumvented and voided, if not formally, certainly in substance. I am not even bothering to see what “part 2″ of the deal looks like in detail.

Another bipartisan commission

Theoretically, “part 2″ will include a bipartisan commission that will make recommendations on further spending cuts for the out years. But, in case they are not bold enough, there will be triggers that will cause automatic cuts. What a messy contraption. But these are the clever creations that could only be thought about by a legislature composed mostly of lawyers. And I bet you that many of those lawyers-legislators who drafted this clever last minute compromise that gets us out of this mess are already thinking about ways in which they could circumvent and possibly void the whole thing later on.

Spending cuts all in the future

Again, please remember that most of the substantive stuff included in the deal is supposed to take place “later”. As one of today’s headlines accurately noted “Debt Deal Puts Off Major Changes To the Future“. And this is Washington’s genius at work. We get the debt ceiling raised right now. The complicated, more painful cuts are for later. But who knows what will happen later.

In 2012 we vote. New majorities. Old people out, new people in. May be a new president. A new cast of characters will have ample latitude to reinterpret decisions made, or tweak future appropriations in a creative way.

Tea Party Victory?

A The Wall Street Journal editorial calls the whole thing “A Tea Party Triumph”. The editorial, rather optimistically states that:

The US is engaged in an epic debate over the size and scope of government that will play out over several years, and the most important battle comes in the election of 2012″.

I doubt the “epic debate” part very much. According to the WSJ, the Tea Party has the merit of having placed the debt issue on the table and of having refused, on principle, any deal that would have included raising taxes. And then the WSJ goes on to say that the US is engaged in an “epic debate”. I beg to differ. It is true that the Tea Party insisted on no taxes. But this was and is an ideological position divorced from context.

No real debate

More broadly, what we just had was no debate and not even the opening of a debate. This has been a shouting match featuring posturing politicians who were debating nothing of substance and who in the end, in order to avoid the supreme embarrassment of national default, agreed on a bare bones deal that resolves nothing and that provides no clear indication as to where US spending is headed, not just today, but –most critically– 10, 20 years from now.

Real debate should be about reforming the US welfare state

I have said it before: the real deal here –and the focus of a “real” debate, if we were having one– is the complete overhaul of the US welfare state, in the light of changed demographics that massively increased the number of beneficiaries and totally out of control health care costs. Congressman Paul Ryan, Republican Chairman of the House Budget Committee put together his budget proposal at the beginning of the year (“Path to Prosperity”) which included a radical reform of the Medicare program. Ryan’s plan argues, with cause, that if we do not fix Medicare in terms of its basic structure and its ruinous cost trends , we have essentially fixed nothing, because Medicare costs grow at double the rate of everything else.

May be his approach to have a voucher program instead of the current Medicare payments system was too radical. But it was and is a “reform plan”. And yet, the Democrats sneered at it and called the plan “unserious”, while portraying it in scary terms in order to scare seniors and get more of their votes. Some way of engaging in a “dialogue”.

Will serious people come forward?

I really hope that smart patriots will prevail and that America, may be in installments, will manage to reform welfare programs designed in other times when today’s total number of beneficiaries and staggering cost dynamics were unthinkable. That said, there is reason for being pessimistic. The US is not Greece in 2010, in the grips of an insolvency crisis. The US is in debt, and getting deeper into it; but America is not insolvent. In fact the world is still willing to lend plenty of money to the US Treasury. The current “US debt crisis” was totally self-inflicted. It reveals political dysfunctions; but it was not caused by fears of insolvency.

Political dysfunctions

And precisely the dysfunctions of the US political system, combined with a problem that is important but not immediately urgent, will conspire to postpone some more, and then some more. Again, this is not Greece. The US can run huge deficits counting on its status of leading world economy (for now) and on the dollar’s role of world reserve currency. There is still (unfortunately) a lot of slack that allows Washington’s politicos to delay, psotpone and procrastinate.

Tea Party and a real spending cuts plan

As for the Tea Party heroes, with all due respect, I shall take them seriously when I shall see a credible ”Tea Party Entitlement Reform Plan”. A Plan that spells out, in detail, how they would reform Medicare and Medicaid, clearly indicating how American voters will get less, probably much less, from Uncle Sam.

So far, when Tea Party leaders talk about spending cuts, they talk in general terms. They usually cite egregious, easy targets of pork barrel projects and other examples of clear mismanagement of taxpayers’ money. All well and good. But none of this waste is worth the trillions that America will have to cut. This may be good material to get the “base” worked up. But the Tea Party “base” gets Medicare checks and collects Social Security. Someone has to tell them that they cannot demand real –as opposed to feel good, symbolic– spending cuts and expect to keep collecting the same they are today from Uncle Sam. It simply will not work this way.

Until we shall have honest political leaders who will have the courage to tell Americans that, whatever they are used to getting, they will have to get used to getting much less of, there will not be a serious debate.

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