THE DEBT CEILING CIRCUS COMPROMISE

Politics has no relation to morals. ~ Nicolo Machiavelli 

You and I have read accounts of the president’s, Rep. McCarthy’s and Sen. Schumer’s AIP (Agreement in Principle) for resolving this year’s federal budget ceiling circus. Since 1960, Congress has either raised, extended or revised the US debt ceiling 78 times. These changes have allowed the federal government to pay for expenditures that Congress has already approved in prior legislation. As I mentioned in my last blog, their AIP seems to conform with the most feasible of the suboptimal solutions for the June 5, 2023 ceiling deadline.  

US Capitol

The best solution would be to annul the entire debt ceiling requirement, so politicians couldn’t advocate fringy proposals – like relying on the 14th Amendment – to surmount the ceiling. But that first-best solution will not happen for two reasons.

First, the ceiling has become politically institutionalized with Congress at the center of it. Congress’ collective ego is very pleased with this. Because Congress has allowed its annual budgetary process to become DBA (Dead Before Arrival) for quite a while, its members will never agree to withdrawing the periodic debt ceiling circus since it’s the only mechanism that affords both pollical parties several weeks of budgetary spotlighting. Unfortunately, this illumination can focus on the vainly desired solutions of both radical liberals and conservatives, the wildest animals in this circus. The real decisions are made behind tightly sealed doors.

Second, it once again allows the media to spend weeks resurrecting updates of stories talking-heads used in the last ceiling circus that propose a plethora of resolutions by this year’s experts. Every media personality has her/his opinion about the ceiling, both within and outside of our borders, and we get to hear from all them if we want. Occasionally, the media reminds us about how appallingly destructive for everyone an actual default would be. One question that has been raised during this year’s debt ceiling cliff-hanger is: why didn’t the Dems pass a ceiling extension in 2022 when they controlled both houses of Congress and the presidency? Was it too early to tango away from the fiscal cliff? Retrospectively, it seems like a sizeable strategic mistake on the Dems’ part.

The path to Congressional ratification of the new ceiling deal now being written as legislation based on the AIP will be bumpily rocky, as always. This will require Joe, Kevin and Chuck, to climb into their politically-directed 4x4s. Joe in his Hummer EV, Kevin in his Jeep Wrangler Rubicon Hemi V8, Chuck in his Chevy Bolt EUV will attempt to smooth the road a bit for eventual success via cajoling, commiserating and hand-holding. This will require overcoming their respective radicals’ upsets about the compromise agreement, as well as convincing their members to expand their perspective for a day or so, beyond the unwarranted discontent of just a sliver of their members.

What does the AIP offer? Repubs get some minor, temporary reductions in government expenditures – including a near-freeze in FY2023 real (inflation-adjusted) funding for many discretionary programs and slimming down the large-ish $80B in additional support that everyone’s most fav federal agency -the IRS- was expecting spend over 10 years to “catch bad-ass, tax-cheating rich guys.” These IRS cuts will be somewhere between $10-20B, almost a pocket-change change across a decade. But oh my, the symbolism of cutting the IRS’s budget and $4 will buy you a cup of coffee on Capitol Hill.

The Dems get an extended, post-2024 election time limit for the next debt ceiling follies and a relatively slim extension of welfare recipients’ work requirements. Both the Dems’ Progs and the Repubs’ Freedom Caucus have started howling that this deal is inexcusably terrible, positing they’ll not vote for it. The deal is not terrible. Especially when you compare this compromise, where by design not all Congress-people are happy, to having no deal at all and default actually happens for the first time.

President Biden, Speaker McCarthy and Majority Leader Schumer have their work cut out for themselves. I think on balance, the Dems are batting .550 with the compromise, the Repubs .450. It may be futile, but let’s hope rads on both sides of the political firmament begin recognizing the GIANT costs that will be borne by 100% of everyone – including themselves – if they don’t agree with this proposed legislation.

Out from center field, this agreement also will likely contain rules to expedite the permitting of new energy-related facilities that mitigate global warming, including a gas pipeline through West Virginia to placate Sen. Manchin. This revised permitting regime hopefully will include facilitating and advancing much-needed electric grid improvements.

For all our sakes, here’s hoping the President, Speaker McCarthy and Majority Leader Schumer are successful in getting Congress to approve number 79.  

 

 

 

TIME AND AGAIN…

Time flies like an arrow. Fruit flies like a banana. ~ Groucho Marx

Recently, physicists reported that they may have found sub-atomic particles (neutrinos) that travel faster than the speed of light; an occurrence that if verified would be inconsistent with Einstein's theory of relativity. That could cause a fair amount of soul-searching in the physicist realm. Meanwhile, in the non-scientific world of Washington D.C. policy-making, time seems to have stopped altogether. Our elected federal representatives get stopped any time they deal with anything related to creating economic/fiscal policy. They continue talking past each other and consciously avoid creating appropriate, effective fiscal policies for our time – a time of continued macroeconomic weakness, elevated long-term unemployment (6.2M Americans have been out of work for half a year or more) and increased inequality.

How can time be so different? I have become so inured to the incomprehensible, outrageous positions politicians (mostly Republicans) have taken regarding the US economy – oh, say regarding the deficit and fiscal policy in a time of sustained unemployment – that I've started doing 2 things. First, I've stopped listening to the media's reports on "the latest" goings-on about Congress', the president's and/or the "super-committee's" macro-economic policy deliberations. It's pointless since they are merely stonewalling any movement to a rational policy due to base politics. They'd rather wait until the very last moment and pass another sub-optimal measure that at best addresses a few of the effects not the causes of our economic malaise, or produce another temporary, partial "budget," so they can pretend to be doing something useful. Nothing substantive is happening that will relieve real citizens' economic unease. And fewer people outside the Washington beltway are fooled by the politicians' empty talk. Which explains in large part why only 15% of surveyed citizens approved of the job Congress is doing; I'm surprised it's that high.

Second, I'm again wondering how seemingly bright people – the folks we've elected to manage our nation and lead its future development – can believe in such outlandish, downright short-sighted, stupid behavior. Despite no evidence of competence for resolving our on-going economic problems, there appears to be absolutely no political soul-searching on the part of Republicans or Democrats that would create more reasoned and responsible approach to getting our nation moving and growing again. Instead, it's always one more time, without any feeling, to do nothing useful except play with each other and blame someone else.

Once again, the narrowness and myopia of political discussion astounds me. What time (and place) do they think they are in? Politicians only care about their (and their funders') current, narrow self-interests. The only time they seem concerned about is today, not tomorrow or afterwards.

Economists have several tools for evaluating this inept behavior, including present value. Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return. Future cash flows are discounted at the discount rate. The higher the discount rate, the lower the present value of the future cash flows. In not acting as if tomorrow (the future) has any value, politicians essentially have a nearly infinite discount rate – not valuing the future at all – where future consequences are completely dismissed. Most non-politicians (e.g., normal adults and businesses) do place value on the future, act accordingly, and expect other folks to do so as well. Actual people's implied discount rates are often subject to debate, but probably range from 3% to 8% at this time. Thus, there is a monumental difference between the politicians' discount rate and that of the rest of us.

For me this difference in time-perspective explains a fair amount of the impending tragedy of politicians' neglectful, juvenile behavior. If they don't value the future (other than getting re-elected), have no time for serving the broader public's interests to get the economy growing again, and choose only to recite dogmatic, selfish ideology, why would they do anything except be histrionic? They're stuck in time, unable to agree to any compromise that could lead us forward and improve ourselves, because they don't care at all about the future. And who suffers most from this? We do.

Should we be surprised that our politicians have difficulty making politically-unpopular decisions in a timely manner – like reducing entitlements and reducing defense spending? Not at all, they are difficult decisions that if properly done, will initially upset many. But these decisions must be made ASAP; and aren't being made by politicians whose job it is to make them. I didn't vote for "my" politicians to merely continue the unsustainable status quo of no growth, high unemployment and growing inequality, I voted for them to look forward, solve these current problems and hopefully make things better. At this time, no politician now seems interested in doing his/her real job.

This time is not that different from others in the past – we remain in a significant recession and need to get the country growing by augmenting government spending to put more people back to work. In time and after we start growing again, unemployment will fall as businesses and consumers start to invest and consume more. [The most recent quarterly increase in real GDP was a miserable 1.3%.] What we now don't need at all is reduced government expenditures that would further prolong the recession. The Republicans' unyielding fetish in "making government smaller" and "no new taxes" at this time is wrong, fool-hardy and self-defeating. It's yet another example of politicians being "stuck in time" (by not having any interest in considering the future), thereby making our impending prospects needlessly more difficult and dour. This leads to increasingly resonant feelings that this time throwing all of them out on some sidewalk may be useful. Or maybe we should just feed them some special neutrinos to get them moving. If only.