Well, that was expensive. The 16-day partial government shutdown and federal debt-ceiling crisis didn’t crash the stock market. Investors made the assumption that Washington wouldn’t be so stupid as to actually default on government debt.
But the political brinkmanship did likely put a damper on economic expansion. Economists reduced their forecasts for fourth-quarter gross domestic product growth by at least a half-percentage point, largely because of the uncertainty Washington created on Main Street.
Congress and the White House have a habit of feeding this kind of uncertainty in the private sector. The 2011 budget showdown, the wait for complex new rules guiding the Dodd-Frank financial legislation, the looming cost and scope of the Affordable Care Act are examples. The Federal Reserve contributed by signaling in June it would cut back its monetary stimulus and then changing its tune in September.
The hope that some benefit will come out of the latest brinkmanship rests with Sen. Patty Murray, D-Wash., head of the Senate Budget Committee, and Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee. They chair the new budget conference committee created in the deal reached last week to reopen the government and extend the debt ceiling.
So is there any reason to hope that this committee will do anything more than dance along to the next crisis? The deal funds the government until Jan. 15 and extends the debt limit until Feb. 7.
Past performance of Congress would suggest that, no, there is no hope. We’re headed back to another economy-depressing political brink.
We'll offer some reasons to think there might be at least slim hope.
The GOP just suffered a severe self-inflicted political wound. GOP leaders, outside of the tea party wing, acknowledge that most of the public has blamed them for the government shutdown and near-default. The GOP leaders should want no part of doing this again in January.
House Speaker John Boehner passed the budget deal in the House with an 87-144 Republican roll call. A majority of Republicans voted against it. Question: If the new conference committee reached a broad deficit-reduction deal that couldn’t win the favor of a majority of House Republicans, would Boehner still move it? With what happened last week, the answer to that question slides a little closer toward yes.
Democrats are falling all over themselves to declare victory. They did score a political victory. But they accomplished nothing last week that helps to put the federal government on a fiscally sustainable path.
So if they’re content with their political victory, where’s the leverage to push them into a real deficit-reduction agreement?
It’s in that word they despise, sequestration.
If they sit on their hands, $21 billion in automatic cuts in the growth of discretionary spending go into effect in January. Democrats are squeamish about those cuts. Republicans, for the most part, are not.
The sequester has effectively imposed consequences for the failure of Congress to deal with the entitlement spending growth that has driven federal debt past $16.7 trillion.
Yes, the sequester cuts spending in blunt fashion. But it’s the only spending discipline we have. We'll have to live with that unless Republicans and Democrats reach agreement on entitlement reform. So maybe Democrats will feel enough of a squeeze from the sequester to step up.
Wishful thinking? Yeah, probably. At least there’s this: Ryan and Murray have far different views on spending and taxation, but they are two of the most capable people in their respective parties. They’ve agreed on a Dec. 13 deadline for their committee to reach an agreement, a month before the next shut down.
They’ve started working. There’s a chance.