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High Noon: The Outcome to the Debt Ceiling Standoff

From the Jeff Frankels weblog:

After a month of high drama the Senate at high noon today voted to pass a bill to raise the debt ceiling.    How to evaluate this outcome?    If I must give a one-word verdict, it would be “good.”   If I can expand to two words, it would be “not good.”   If I can elaborate to 20 words: “The legislation confirms the sorry state of our public deliberations, but it is about the best that could be hoped for,” given where the negotiations were as the big hand on the clock approached twelve.

            In what sense was the outcome to the debt ceiling standoff good?   It was much better than a number of alternatives that could have easily happened.  Washington managed to put the pin back into the hand grenade.   Specifically, it is good that:

  • 1. Those who favored a US default - in some cases deliberately, not just as a bargaining tactic — did not prevail.
  • 2. Those who sought to force the Congress and White House to go through the madness of voting on the debt ceiling every few months between now and the next presidential election did not prevail.
  • 3. The bill’s 10 years of spending cuts are not front-loaded. Frontloading would have substantially raised the chances of going back into a new recession. (So would have default or an uncertainty-maximizing short-term fix.)
  • 4. The bill has a mechanism that just might possibly in November demonstrate to the arithmetically innumerate that it is literally impossible to eliminate the budget deficit if the cuts are to come primarily by cutting discretionary non-security spending.  Instead, military spending, entitlements, and tax revenues will have to be part of the eventual solution — as also favored by the American people, even a majority of Republicans, in polls. This epiphany on the part of the people who are described as die-hard fiscal conservatives is needed in order before we can break the political log-jam.

            The mechanism is to force Congress to confront an unpleasant but clear choice between (i) on the one hand, deep automatic cuts that hit defense, which are anathema to most Republicans, and Medicare, which are anathema to democrats, and (ii) on the other hand, the more thoughtful recommendations of a bi-partisan panel, which would certainly spread out the pain more to include increased tax revenues, anathema to Republicans, and other entitlement cuts, anathema to Democrats.  The panel is to report its recommendations in late November, and the Congress is to vote on them in December.  This mechanism if of course crude, but may be the sort of thing we need to force individual congressmen to confront arithmetic.     
            Some have asked how this panel will differ from the ill-fated Simpson-Bowles commission.   A critical difference is the requirement that the Congress must vote up-or-down on the recommendations.   (This was also a feature of the original version of what became the National Commission on Fiscal Responsibility and Reform, but the provision was voted down by Senate Republicans, including some who had sponsored the proposal until President Obama came out in favor of it in January 2010.)

            In what sense was today’s outcome to the debt ceiling stand-off “not good?”   It would have been better if:

  • 1. The Republicans had agreed to some of President Obama’s various compromise proposals over the last year and a half; or
  • 2. The showdown had at the last minute forced a “$4 trillion” Grand Bargain in which all sides had ceded ground in order to adopt a workable and credible plan to get back to fiscal responsibility gradually over the coming decade, rather than subsisting on political rhetoric.
  • 3. The outcome had included something to help the current faltering recovery.
  • 4. President Obama could have come off looking like Gary Cooper.

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