From ceiling to super committee to sequester

It has become a fact of life in Washington, D.C. that Congress will be in a constant state of self-induced panic. When you have one political party that is so opposed to the very existence of the current President, it becomes politically impossible to govern effectively. The result we have seen is that neither the President nor Congress is able to keep the federal government running properly. The current sequester fiasco is just the latest iteration of this pattern.

The sequester that everyone is talking about, yet few understand, is basically a set of severe spending cuts to various different government programs designed to be so politically unsavory that Congress would be forced to make a deal of some kind to avoid it. So how did this come about?

In the summer of 2011, the artificial debt ceiling that Congress had set earlier was about to be reached. House Republicans seized on the opportunity to fulfill their campaign promises (this was following the midterm elections of 2010 when the Tea Party swept into power in the GOP) to cut spending. The GOP dug their heels in and refused to accept any increase in the debt ceiling without spending cuts of some kind. Democrats preferred to simply raise the debt ceiling without any spending cuts, but if they were forced to cut spending, they wanted to include some mild tax increases on the richest Americans. But Republicans refused to acknowledge any possible deal that included any increased tax revenue of any kind. In one Republican presidential debate, all of the candidates agreed that they would refuse a deal that included $10 of spending cuts for every $1 of new revenue.

Of course, any economist would tell people that spending cuts or tax increases during a recession or during a recovery are not only a bad idea; it could derail the economy. The logical choice at this point in time would have been to simply raise the debt ceiling and when the economy begins growing again people can bring up spending cuts.

But of course Congress does not act logically, so spending cuts needed to happen. So then the debate was whether cutting spending or raising taxes would hurt economic growth more. In the end, the GOP decided to stick to their guns and refuse any increase in tax revenue whatsoever. The result was Obama breaking down to their demands in order to save the economy from running into the debt ceiling.

The “solution” was to create a scenario inspired by a “Saw” movie. Congress gave themselves a choice. Either come up with an arbitrary amount of spending cuts before an arbitrary date, or a bunch of automatic spending cuts to some of each party’s most valued government programs would set in. For the Democrats, cuts would be made to housing subsidies to the poor, FEMA disaster relief, the National Science Foundation, Medicare, and national parks. For Republicans, there are cuts to the military. The extent of these budget cuts were meant to be so perilous that Congress would never dare let it occur. To make sure that this terrible consequence would not occur, a select group of representatives and senators (the super-committee) was selected to negotiate a deal.

But remember, Congress does not think logically. First of all, the political drama fest they created caused the U.S. to lose their AAA credit rating, which caused a stock market crash. Second, the super-committee failed to accomplish anything at all, and these terrible spending cuts were set to take place on Jan. 1, 2013. This contributed to the “fiscal cliff” crisis that was manufactured by Congress. But after the 2012 elections in which Republicans suffered losses in the Senate, House and the White House, there was finally the possibility for some meaningful negotiations.

Predictably, it was not to be so. Democrats moved the line because Obama had campaigned on the idea of raising tax rates on those making over $250,000 per year and won re-election with it. Republicans, sobered by their widespread losses, were finally willing to see some very mild tax hikes on the richest 2 percent of Americans, and the problem of the automatic spending cuts was punted into March. Now that deadline has come and gone and Congress has done nothing and the spending cuts are beginning to take effect now.

In the end, these spending cuts are unlikely to destroy the economy or send us into another recession. Ironically, by pushing off the spending cuts repeatedly, Congress actually did a good thing by making sure the economy was robust enough to take the cuts without collapsing. But just because these cuts would not destroy the economy does not mean they are good for the economy. Imagine the economy is an athlete recovering from an injury. Cutting off a toe probably will not destroy his or her career, but why would you do it? When Congress debates as to whether to cut spending or raise taxes, it is like debating whether it is better to cut off a toe or a finger. It is insanity.

No side is blameless here, and it is important to note that members of Congress will respond to their constituency. If their district is ultra-conservative, they will be ultra-conservative. If their constituents demand a candidate who is willing to send the U.S. economy off a cliff so deep that it makes the Great Depression look like a mild case of the blues, that is the candidate they will get.

So when will Congress begin functioning again? It could be as early as 2014 if some of the extremists in Congress lose their jobs to moderates. Or it could be never.