The stock market is not the economy, and it's not even the most reliable indicator of what will happen in the economy. Back in October 1987, the Dow Jones industrial average lost 22 percent of its value in a single day. It would be another two years before stocks recovered, but the U.S. economy? It grew 4.1 percent in 1988. The recession that everyone feared was imminent didn't arrive until 1990.
But as they say on Wall Street, past performance is no guarantee of future results. Markets fall for reasons both real and perceived, and in the last three weeks, investors have lost faith in the ability of lawmakers to address the country's debt problems without wounding an already feeble economic recovery.
This has less to do with the U.S. losing its triple-A rating than what Congress might do to try to regain it. Is it even capable of striking the right balance on spending cuts and tax increases that will strengthen the federal balance sheet in the long run without weakening the economy?
Tim Penny wrestled with those kinds of questions during much of his dozen years in the U.S. House of Representatives, where he managed to be a thorn in the side of Republicans and his fellow Democrats.
Penny arrived in Washington in 1983, determined to talk about the nation's mounting debt at a time when the rest of the country was in no mood to talk austerity. President Ronald Reagan's Morning in America had just dawned following a deep recession that saw unemployment climb to 10.8 percent.
The closest Penny came to a major victory was in 1993, when he and Republican John Kasich co-sponsored a bill that would have cut federal spending by more than $100 billion over five years, and impose a form of means testing on Medicare beneficiaries. It fell six votes short of passing.
Penny left Congress frustrated at his mostly futile attempts to shrink the size of government and address the crisis looming decades hence, when promises made to older Americans would consume an ever larger share of federal spending.
Since then, Penny said, "the fiscal problem has grown worse while the politics have grown harder."
So, too, have the economics. Surging economic growth through much of the 1980s and 1990s, coupled with tax increases, helped turn annual budget deficits into surpluses and slowed the growth of our national debt.
Then came the tax cuts of 2001 and 2003, two recessions, the expansion of Medicare and two wars.
Penny observed these policy choices from afar, but not from a distance. He's president of the Committee for a Responsible Federal Budget, a bipartisan, nonprofit budget watchdog organization.
His organization wants the same thing that Wall Street seems to want: demonstrable proof that Congress and President Obama are willing to rein in federal spending while reforming and strengthening entitlement programs.
That doesn't have to come through deep and immediate spending cuts that could derail the economic recovery, Penny said. But a credible plan must have legitimate and enforceable milestones or triggers.
It should also include tax reform, similar to what President Reagan pushed through in 1986. That measure stripped all sorts of goodies out of the tax code -- deductibility of interest on credit card and auto loans, for example, or passive losses on real estate limited partnerships -- to help pay for overall lower tax rates.
"It's either got to produce more revenue, or you've got to be sure that it's the kind of reform that stimulates more investment and growth," he said.
Penny likes to joke that he left Congress being able to claim "a lot of moral victories." But he always worried that the longer Washington put off making decisions, the more draconian (by necessity) they would become.
Unfortunately for us, he was right.
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