Congress can too take us over the fiscal cliff if it wants to, James S!
[Yes, you can click to enlarge.]
"The fact that Congress was foolish enough to create the fiscal cliff doesn't mean it also has to be foolish enough to drive us off it."
-- James Surowiecki, in this week's New Yorker
Financial Page, "Cliffhangers"
Financial Page, "Cliffhangers"
No, James, Congress doesn't have to be foolish enough to drive us off the fiscal cliff, but it can if it wantsta, nyah-nyah-nyah.
Trust Financial Pagemeister Surowiecki to find a new angle on the fiscal cliff Congress created for itself and now doesn't know how to back away from. It's the concept of "pre-commitment" now making the fashionable rounds.
The idea is simple: you set a specific goal (lose twenty pounds in six months, say), and then commit to paying a penalty if you fail. Some people rely on a friend to help them live up to their word, but now there are also pre-commitment Web sites, like stickK.com (created by two Yale professors and an M.B.A. student), that will track your progress or lack of it, and take your credit-card info to insure that you suffer if you fail. StickK.com also makes it easier for you to design a penalty that will really hurt. Republicans, for instance, can commit to donating money to a pro-Obama Super PAC if they don't follow through on their resolutions. And stickK.com's data, at least, suggest that pre-commitment works. People who make resolutions on the site but don't put money at stake and don't pick someone to monitor their behavior succeed only twenty-nine per cent of the time, but nearly three-quarters of those who agree to pay a penalty and who name a referee follow through on their vows.This is, James says, pretty much the approach the approach Congress took last year. It "may not have signed up with stickK.com, but it, too, has tried to use pre-commitment to curb its bad habits."
* Congress isn't a single entity "that can truly make a resolution." Individual congressmen all have different agendas, as do the two parties to which they belong.
It didn't work. The super committee quickly, and predictably, failed, and, in the months that followed, Congress did nothing. If things go on like this, the spending cuts will start going into effect with the new year, and that, in combination with the expiration of the Bush tax cuts, will send us off the fiscal cliff: government and personal spending will plummet, potentially throwing the economy back into recession. No one likes this prospect. The White House says that the cuts will have "a devastating impact," and John Boehner, the House Speaker, says that the defense-budget cuts represent a "serious threat" to national security. Yet no deal seems imminent.The obvious question then, James suggests, is: "Why didn't pre-commitment work for Congress?" He first suggests some obvious structural reasons.
* And as regards the Republicans, Democrats "expect[ed] that, when push came to shove, Republicans would vote to raise taxes," and "this was never going to happen." (The no-taxes pledge signed on to by most congressional Republicans, James suggests, "is a kind of pre-commitment device in its own right.")
* But then,
Congress's failure to reach a "grand bargain" on the deficit reflects the simple fact that, while talking about balancing the budget is easy, doing the things that you have to do to balance the budget is hard. This isn't just a problem with politicians; it's also a problem with voters, who regularly say that the deficit is a major concern, yet they also favor government spending to create jobs and oppose major cuts in most government programs. (The one program that voters are always happy to slash is "foreign aid," and that may be only because they vastly overestimate how much gets spent on it.) This is why Congress likes to outsource tough decisions to super committees and commissions, like Bowles-Simpson: it wants others to do what it can't do itself. This is also why it thought pre-commitment would be a good idea.So what now?
Some commentators have suggested that the best course now may be to just let the sequestration cuts take effect: that'll teach Congress a lesson, the thinking goes, and, once the cuts start to be made, there'll be even more pressure to reach a deal. Though such a course of action might find favor with stickK.com's users, it would be terrible policy. After all, the cuts were designed with an eye to what would be most painful to people in both parties, rather than to what kinds of trims in government spending might make sense. It would be farcical to let cuts go through that nearly everyone on Capitol Hill thinks are misguided.And then, I would suggest, James hauls us straight into the Twilight Zone.
Besides, the goal that sequestration was originally designed to enforce makes little sense right now. With the U.S. government able to borrow money at incredibly cheap rates and the economy still weak, slashing federal spending is the opposite of smart. The fact that Congress was foolish enough to create the fiscal cliff doesn't mean it also has to be foolish enough to drive us off it.(1) The fact that "slashing federal spending is the opposite of smart" by no means means that the congressional spending-slashers will be any less keen to do it. And (2) like I said, just 'cause Congress doesn't have to be foolish enough to drive us off the fiscal cliff doesn't mean that it won't, or that it can't dream up something even crazier.