The SuperCommittee Fails
Posted on November 21, 2011I have egg all over my face.
I thought the supercommittee was going to be successful. I was wrong both because I was too optimistic and because I was too pessimistic.
I was too optimistic because I believed that the legislative branch could work, especially when it had given itself super-expedited procedures that compelled action. I was too pessimistic about America’s economic place in the world, and I thought our dire situation would compel lawmakers to act.
As it turned out, I was wrong on both scores. America is not nearly as screwed up as Europe, for example, and that makes U.S. Treasuries a safe harbor for investors. And the legislative branch only acts when it has to act, and only then on a holiday weekend at 3 o’clock in the morning. This supercommittee found plenty of reasons to kick the can down the road.
In the final analysis, here are the six reasons why the supercommittee failed:
1. No real deadline: Putting off an automatic sequester for a year is like extending a college senior’s thesis for a semester. There is no way that the Congress was going to make any tough decisions with the planned cuts so far away.
2. No leadership from the president: Obama signaled what he thought of the supercommittee by wasting most of his rhetorical power on a pathetic jobs package that everybody knew was going nowhere. The president has punted on major fiscal issues at every point in his first term. Indeed, he has made the fiscal situation measurably worse, first with an ineffective and wasteful stimulus package, then with a budget-busting healthcare law, and finally by extending the Bush tax cuts without including spending cuts. It was altogether appropriate that during the last days of the supercommittee, the president was half a world away.
3. No pressure from the business community: Titans of industry talk a good game about fiscal responsibility. But they don’t really care much about it. If they did, they would force the politicians to make a deal. Instead, most of corporate America has been scrambling to find ways that they can avoid the budget ax. There might come a point where the U.S. government’s insolvency becomes a drag on the collective bottom lines of major American corporations. We are obviously not at that point yet.
4. No panic from Wall Street: In the early 1990s, the bond markets pushed President George H.W. Bush and President Clinton to conclude major budget deals that proved to be politically painful to both presidents. And I thought they would do the same now. But with the imminent downfall of the euro, the dollar still looks pretty strong to most investors. That might not always be the case — and if America continues down the current path for another five years, it most certainly won’t be the case — but for the moment, Wall Street has given the politicians some breathing room.
5. No reason to alienate the political base: In a volatile election year, it simply became too risky for Republicans to alienate the anti-tax crowd and for Democrats to alienate the entitlement industry. Many Republicans courageously said that perhaps we ought to think about more revenues in the context of tax reform, and for that, they got tons of grief from their conservative base. Saying it is one thing. Voting on it is something completely different. Democrats, on the other hand, seemed to have no interest in really sticking their heads out (which is why Harry Reid had his campaign chief lead the supercommittee negotiations). The percentages just weren’t there to take a gamble that could have been political suicide.
6. No buy-in from the American people: Let’s face it. The voters simply didn’t really care that much about the supercommittee and didn’t care for the ideas that were being bandied about as part of a compromise. Poll after poll showed that the only popular idea coming from the negotiations was the Democrat plan to soak the rich (something Republicans weren’t going to allow). The voters don’t want Medicare reform. They don’t want Social Security reform. They want to get rid of foreign aid and earmarks (which saves you about a half-penny on the dollar).
The supercommittee failed, but let’s not blame the brave souls who served on it. This wasn’t their failure alone. There is plenty of blame to go around.