A brief word about the budget deal
THE timing of the deal struck on spending priorities for the remainder of the fiscal year was such that the government actually was shut down for a few minutes, before a one week stopgap resolution (which buys the time to complete legislation on the actual compromise) could be passed. But the damaging, uncertain duration halt to government operations that many feared has, it seems, been averted.My colleague has some details here, and of the process he writes:Congressmen from both parties are congratulating themselves on the historic nature of the deal. It does cut spending by an unprecedented amount, especially considering that half of the year has already passed. Moreover, it entails concessions from both sides. The Democrats agreed to far deeper cuts than they had wanted; the Republicans abandoned almost all of the ideologically-charged “riders” they had tried to slip into spending bills, undermining the Democrats’ health-care reforms, for example, or restricting the Environmental Protection Agency’s power to regulate greenhouse gases. Instead the Democrats agreed to put some of these proposals to separate votes, knowing they will not pass the Senate. Mr Obama made a statement shortly after the agreement was announced full of stirring words such as “compromise”, “leadership” and “dedication”.For all this heady talk, however, the deal-making has been far from edifying. The Democrats brought events to this pass by neglecting to pass a budget last year, when they had control of both the House and the Senate. The Republicans, for their part, refused to accept a Democratic offer to cut the very amount their own leaders had originally proposed back in February, $75 billion, and instead held out for $100 billion. Moreover, in a naked display of opportunism, they seemed willing to bring the government to a standstill over riders that had nothing to do with the budget.I think it's worth remembering a few important things. First, the federal government did not need to cut spending in this fiscal year. There is no immediate fiscal crisis; on the contrary, yields on American government debt remain extraordinarily low. Second, macroeconomically speaking, now is a bad time to be cutting spending. The economy remains very weak, state and local governments are already trimming back public spending and placing a big drag on economic activity, and there's plenty of contractionary developments in the pipeline already, from the impending end of QE2 to the impact of rising oil prices. Since the government didn't need to cut and shouldn't, from a macroeconomic perspective, have been cutting in the first place, it's hard to understand why anyone thought it was a good idea to threaten a damaging government shutdown in order to cut.Third, had America actually been facing a crisis or had it simply been an opportune moment to trim back state spending, this was just about the worst way to go about cutting. The cuts don't touch on the real sources of the long-term budget problem. They impact important programmes and are therefore of questionable sustainability. Little to no effort was made to identify cuts with the best economic return. And the Republicans made a joke of the whole process by larding their demands with fiscally irrelevant riders, most of which seem tailored to enrage Democrats.Everyone involved should be embarrassed. But few journalists seem to think that this absurd sequence of events will in anyway reduce the likelihood of an even greater mess down the road when it comes time to raise the federal debt ceiling. The case for raising the debt ceiling is incredibly strong. For one thing, not raising the debt ceiling could be end up being really bad; the government would have to engage in major gymnastics to avoid a default. For another, not raising the debt ceiling would not address the government's deficits; deficits and debts are residuals. If you want to actually limit them you have to identify spending that should be cut and taxes that should be raised. What's more, the leaders of both parties say that the debt ceiling should be raised. Most everyone wants to do something which most everyone agrees should be done.And yet, the government will likely be pushed to the edge of crisis. These fights are risky and counterproductive. Sadly, I suspect that the reaction of most of the Washington press corps will be to—once again—get so caught up in the tick-tock of the dramatic showdown that they'll neglect to point out just how magnificently the elected leadership in Washington is failing its citizenry.