Budget Chronicles

By Roosevelt Institute |

Without a radical center, we face a failed political system.

A few thoughts as the debacle continues and default approaches…

(1) The Bulletin of the Atomic Scientists used to show a clock face indicating how close we were to nuclear war. I’ve moved the deficit/debt clock to about 15 seconds before Default Nuclear Winter sets in. There are too many ways a mistake can happen. I still think there will be a last moment arrangement of some kind that will avoid default — it will not solve any problems, it will be as purely political and as little substantive as can possibly be devised, but it will be the most this sorry excuse for a political system can agree on.

(2) President Obama has played his hand well, and consistently out-maneuvered the Republicans. He will not come close to reaching a major budget/debt ceiling deal, but he is doing the right thing substantively and politically. This is, thank god, not the passive let-the-Congress-work-it’s-way President Obama. He has shown grit, resolve, and consistency on the policy issues; he has acted in the manner that a president should in terms of governance; and he has established himself as the grown-up. And in fairness, Speaker Boehner deserves credit for trying to act like an actual leader also, until his Party pulled him back.

(3) Getting to a major deficit/debt ceiling deal was always a step way, way too far — its not obvious that in our current political state we are capable of any deal. Both President Obama and Speaker Boehner are prisoners of the true believers of their respective bases, who hold precisely contradictory and canceling beliefs about taxes and entitlements. At the same time, the respective true believers hold exactly the same views in several other areas: (a) they do not believe the debt ceiling matters; (b) they do not think default is all that serious; (c) they are equally prepared to sacrifice the rest of the government; (d) they believe compromise is evil. The true believers, even added together, sum at most to 50% of the electorate, but that doesn’t matter because there is no organized way for the other 50% of the voters to be recognized. And until there is a real middle in our politics again it is hard to see anything but “kick the can down the road” policies. The two parties as currently structured will never miss a chance to miss a chance.

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(4) So what now? For the very short term,

• President Obama should say publicly and with great sadness that his efforts to solve the problem failed at the last moment. He should not sugar coat this. He should add some thoughts about the mess we are in, and the need for compromise, and the continued need for an overall economic policy. He should not be afraid of characterizing the House Republicans in the same way David Brooks did in the column I have already discussed. This is the perfect time to push the crazies into a small box.

• Then the President should propose a 6 month deal composed of about 80% spending cuts and 20% revenue increases. He should not build such a proposal up at all; on the contrary he should describe it as a completely unsatisfactory stopgap whose only purpose is to avoid a disaster, a stopgap that reasonable people would agree to in an instant. Then he should stop negotiating, and focus on explaining the effects of what is about to happen.

• Finally, the President should send Tim Geithner and Jack Lew out to lay out in excruciating detail the order in which payments will be missed. As I understand the numbers, the first to be missed will actually be a large social security payment on August 3. I’m not sure we can get beyond this before we default but the President has to present the menu of horribles.

(5) The highest probabilities are for a purely political last second arrangement. I am not surprised but depressed at the apparent fact that the proposal of Senator McConnell — which is solely aimed at avoiding Republicans being blamed for a disaster, and shifting future blame to Democrats — is the single most likely proposal to pass.

(6) On the whole I’ve thought that President Obama has handled this well. But he needs to step back and realize that there has not been a strategic approach to his Presidency, an economic narrative has never been established, critical foresight has been lacking, and economic communications have been appalling. Here is a simple example of absence of foresight. There were endless negotiations in March over the closing the government issue: it was not closed, everyone was relieved, no one learned anything. These discussions would be completely different today — and far better — if the Administration had looked ahead and allowed the discussions to fail, and shut the government down.

(7) The business community has been almost completely absent and silent throughout this mess. Individual CE’s have been invisible; and, with the exception of the CED (which I am a trustee of and once co-chaired), the business organizations have been totally silent. Well, that’s not quite true — the other day a couple of them said that default would be a bad thing and the debt ceiling should be raised. Talk about empty and spineless. The explanation for this is several fold: many major companies have deep budget/tax conflicts — they prefer the specific benefits they have to a broad tax/budget resolution; their public policy positions are determined virtually completely by their Washington offices, they dislike Obama, and they have as many interests outside of the U.S. as inside — so why take any risks. But the resulting behavior is close to irresponsible — they fulminate constantly about fiscal balance, investment, infrastructure, growth, and competitiveness. But only in general. They disappear when actual specific tradeoffs have to be discussed, and they lobby constantly for increases in the deficit.

(8) No one should kid themselves. This whole appalling episode is symptomatic of a failing political system. We are more polarized politically than we’ve been in over a century. We are avoiding every major domestic problem the country faces and most of the international ones. And the two major political parties dwell today in different universes in terms of agendas, ideologies, and most disturbingly actual facts. You tell me how we get out of this unless there is a true radical center.

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

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