Treasury Secretary Timothy Geithner.
Chris Usher, Associated Press - Ap
Now get back to work on that grand bargain
- Article by: CLIVE CROOK
- Bloomberg News
- January 2, 2013 - 8:52 PM
The vote Tuesday night in the House of Representatives brought to a close the latest Washington master class in dereliction of duty. After a few days of arguing about who won or lost, we can move on to the next manufactured crisis.
In itself not much of a surprise, the fiscal-cliff deal avoids most of the tax increases and postpones almost all of the spending cuts that were about to be triggered. Throughout this farce, financial markets had refused to believe that the U.S. government would inflict a recession rather than strike a budget agreement, especially because they knew that, all posturing aside, the distance between the two parties was small. Markets wobbled but didn't collapse.
Let's hope they react with similar equanimity to the next pointless quarrel, over the debt ceiling. Treasury Secretary Timothy Geithner told Congress last week that the current limit on government borrowing was about to be reached. He said "extraordinary measures" (essentially, shuffling funds among government accounts) would be used to prevent the debt from breaking through the ceiling.
How long can that go on? Geithner wasn't sure. Maybe two months under normal circumstances, he said, but "given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures."
The latest deal does little to resolve those uncertainties. The spending-cut part has merely been delayed by two months. The tax increase for couples making more than $450,000, together with other changes and estimated savings in debt interest, shaves about $700 billion from the 10-year deficit. Savings of about $2 trillion will be needed to stabilize the ratio of public debt to national income. Bringing that ratio down to a safer level requires spending cuts and tax increases worth $4 trillion -- the original "grand bargain" ambition.
Instead of dealing calmly with the problem, fiscal policy has settled into a mode of perpetual phony crisis. Phony doesn't mean harmless, however. The risk of a real fiscal crisis gradually builds. Meanwhile, the cumulative effects of simulated crisis might be almost as bad. It's the difference between an acute illness and a chronic wasting disease -- one that's beginning to look incurable.
Don't tell me the economy just had a lucky escape. Whatever happens next, it has been paying for the fiscal standoff for months. It's paying for what Congress might do with the next debt ceiling, and the one after that. The "significant uncertainty" that Geithner referred to has already held back the U.S. recovery. Another temporary fiscal patch isn't a remedy. It's just more of the same.
The economy needs a lasting fiscal compact that commands broad, bipartisan support. I can hear the groans. Not another call for compromise. Many Democrats and almost all Republicans find the idea disgusting. On Capitol Hill, it's no longer enough for one side to win; the other has to be seen to lose. That attitude is the growing burden the economy has to carry.
The remarkable thing is the passion of this mutual animosity, given how little divides the combatants. President Obama's health care law, don't forget, was built to a Republican blueprint. All Democrats have embraced the Bush tax cuts as they apply to 98 percent of taxpayers, and most acknowledge the need to contain entitlement spending, which the Republicans insist is essential.
Before the rank-and-file in Congress forced a retreat, the House Republican leadership broached raising the tax rate for people earning more than $1 million a year and suggested collecting more revenue by limiting deductions, a reform favored by all thinking progressives.
This is hardly a clash of irreconcilable visions, as the two sides want to claim. Seen from beyond the Beltway, the budgetary gap isn't just bridgeable, it's trivial. Democrats and Republicans relish and exaggerate the differences. Their enmity is less about economics than about culture, values and class. That's what makes it so poisonous.
Obama offers the best hope for calming this conflict and passing broadly supported -- hence lasting -- fiscal reform. At the moment, it's hard to be optimistic, because the president has chosen since the election to strut more than conciliate, to be a partisan champion, not a one-nation leader seeking to build agreement.
Declaring victory this week won't serve his or the country's interests. A little magnanimity would go a long way. Nonetheless, count on the Republicans to make presidential aggression look reasonable.
This dynamic could still change, and for America's sake it had better. The automatic expiration of the Bush tax cuts was a fleeting moment of political leverage for the White House, difficult to forgo. That moment has passed. Now the president has to think about the delayed spending cuts, the debt ceiling, comprehensive tax and entitlement reform, and his second term.
He can set out to split differences, build consensus and solve problems. Or he can stand on principle, berate the opposition (and the half of the country it represents), and keep the crises coming. If he does the first, he may fail. If he does the second, he can count on it.
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