Wednesday, October 09, 2013

Reflections on Gridlock

I've been struck in this current (or continuing) political fight how unable the political class seems to be able to look for a solution on both the budget and the debt ceiling.   There are many causes but no one seems to be working toward a solution.   But the discussions in the media have been less than helpful.

Here are some thoughts - 
#1 - Each side seems intent on talking to itself - Here is how a left of center friend described the stalemate in a Facebook post - "This is a fight they have lost nearly 50 times in Congress, in a national election, and in the Supreme Court. Democrats have compromised by offering a measure that included $72 billion in annualized across-the-board spending cuts to keep the government open. The Senate passed this legislation multiple times before the government closed. " This friend is normally a very reasoned person but the post strikes me as ignoring some major issues.    Let me parse the statements a bit.  This is a fight they have lost nearly 50 times in Congress, in a national election, and in the Supreme Court.  I am not sure where the number 50 comes from but my friend ignores the fact that the ACA (if that indeed is the base of the problem) was adopted by an extraordinary set of procedures without a single vote from the GOP; the immediate election after the bill was adopted saw massive losses for the democrats mostly attributed to the one bill; the Supreme Court's decision on the constitutionality of the measure was actually a 4:4:1 decision. It is one which is not likely to be in the replay roll of SCOTUS.   All of this suggests that the ACA could use some adjustments to build a broader political base.  Democrats have compromised by offering a measure that included $72 billion in annualized across-the-board spending cuts to keep the government open.   That assumes that the supposed $72 billion actually solved the deficit - but it (which even with the reductions from the top) continues to be among the largest in our history.  More needs to be done on both the level of government spending and reducing the debt.   The Senate passed this legislation multiple times before the government closed.   So far the leader of the Senate has been the most strident in opposing any substantive discussion about changes in the ACA.  When you listen to the pundits of the right - they echo tired phrases - as tired as the ones of my friend on the left.

#2 - The Political Class seems to think this is a silly game not serious business - Wonkblog actually created a Daily Default Dashboard (See illustration above) which is based on a series of questionable financial indicators.   Even that seems to indicate that the level of projected tension in Washington is not high at this point.   They figure they can screw around for a couple of more days and then get credited with the save.   Joel Kotkin points out in a recent column "This has been a golden era for the nation's capital, perhaps the one place that never really felt the recession. Of the nation's 10 richest counties, seven are in the Washington area. In 1969, notes liberal journalist Dylan Matthews, wages in the D.C. region were 12 percent higher than the national average; today, they are 36 percent higher. Matthews ascribes this differential not so much to government per se, but on the huge increase in lobbying, which has nearly doubled over the past decade."  Kotkin argues that all this has lead to a divide in the country that is not just left/right but between the Washington elites and the rest of us.   The GOP may be leading the way but everyone's reputation is taking a hit - at some point we will rise up and say enough shenanigans.

#3 - So what about the debt ceiling and the CR? - Yesterday the President said he will begin to negotiate when the House passes a clean CR and debt limit increase.   He seemed also to say that it is unusual to negotiate on something like the debt limit - (one of his favorite lines - the debt limit increase is merely confirming what Congress has already authorized).   But those premises are false on a number of points.   First, since 1962 the debt limit has been raised 74 times (according to the Center for American Progress - hardly a conservative mouthpiece).   Our debt held by the public amounts to about two thirds of our national product which is the highest it has been in almost sixty years.   In prior periods things like Gramm-Rudman-Hollings and PayGo have been included in debt limit adjustment agreements.  Debt limit votes have proven a good time to elicit spending reductions and controls.  Doing what the President proposes would expose about half the country to more unbridled spending.

Interest on the debt is about 6% of the total federal expenditures.   So the claim that if the debt ceiling is not increased we will default are nonsense.  Organizations like Moody's have pointed out the absurdity of the claim - in a CNBC interview the CEO of Moody's said  “It is extremely unlikely that the Treasury is not going to continue to pay on those securities, hopefully it is unlikely that we go past October 17 and fail to raise the debt ceiling, but even if that does happen, then we think that the U.S. Treasury is still going to pay on those Treasury securities,” he added.   The best estimate of the effects of the lack of a CR (continuing resolution - which is a short term fix necessary because the Congress cannot actually pass a real budget) has on governmental programs is about 17% (thus 83% of the government is still operating).  The President has a lot of discretion in deciding which things stay open. So if we default it will be done by the President much in the same way that the Administration has chosen which things to call non-essential.  So far the President has chosen a standard policy of making the pain visible.   But as we saw at the WWII memorial - many people are beginning to understand the politics of closures.

#4 - So what is the fight actually about? -.   Note that in the last five years, partially as a result of the recession but not entirely, the percentage of the economy dedicated to federal spending is significantly above what it was prior to this president.   Revenues have begun to trend back to their normal levels (at under 20% of GDP) but the deficit is still large because the expenditure side of the budget is still considerably larger than it has been at any time in our history.  Note the projected "drop" brings the budget back to 4-6% over where it has been and that is in a time when war expenditures are going down.  As mentioned above, that is also true for that our total national debt (both what is represented in internal transfers and what is owned by the public) is the highest it has ever been.

Ultimately, I believe the American people want something less from government.  They've shown a reluctance to raise taxes to the levels necessary to fund all the things the Administration wants to do.  They've also shown a great deal of well deserved grumpiness about the implementation of the ACA.    One other issue - unlike prior fights on this issue - while the right is taking a beating - so is the President.   An NBC/WSJ poll in September found that a small majority of Americans disapprove of Obama's handling of the economy (52%).   By a 2:1 margin Americans do not want to raise the debt ceiling.   At the time the respondents supported the GOP notions on working on the deficit by a 12 point margin.  Another major poll about the same time said by a 20% margin that they disapproved of the President's handling of the economy.   And more importantly 40% thought the economy would be worse off a year from now.  52% of the respondents believe that the economy is in bad (bad, very bad or terrible) shape.

#5 - How will it all come out? - see The Paul Masson Theory of Legislating - I've taught a course on legislative practice over the last couple of decades in which I lay out about a half dozen rules that I came to understand in the four decades that I worked in Washington and Sacramento.  The Paul Masson Rule is simple - legislators will make no decision until they have to (riffing off the old commercial - we will sell no wine before its time).   My suspicion is that they will begin to talk in the next couple of days and come to a resolution within a day or two of the supposed deadline when the debt ceiling will begin to pinch - that might be as late as the 20th but certainly before Halloween.

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