Home' Trinidad and Tobago Guardian : October 31st 2013 Contents BG28 | THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt OCTOBER 2013 • WEEK FIVE
"One of my favourite old Kentucky sayings
is that there s no education in the second kick
of a mule," says Senator Mitch McConnell
(Republican-Kentucky), with the homespun
wisdom of a man facing re-election shortly.
In Washington, though, the worry is that
lawmakers haven t learned from the first kick.
On October 16 Congress passed a deal to
reopen the federal government, raise the debt
ceiling and avoid a sovereign default. Written
into the pact, however, were two horrible words:
January and February. Unless the two parties
can agree on a budget deal, the government
will run out of money again, bringing another
partial shutdown on January 15. Then, on Feb-
ruary 7, government borrowing once again will
touch the debt ceiling.
The damage done by the recent budget brawl
was grave. In political terms it accrued mainly
to McConnell s party. Polls find voters disgusted
with Democrats, but even more so with Repub-
licans -- and heartily sick of politicians in general.
In economic terms the bruising was indiscrim-
The 16-day shutdown will have reduced
quarterly growth by 0.6 percentage points, the
ratings agency Standard & Poor says. The White
House estimates that it will cost 120,000 jobs,
in a labour market that, as the latest figures
show, already was weak.
The fear that America has grown ungovern-
able may have a worse, and more lasting, effect.
Public and private investment is being delayed
or canceled. Companies complain constantly
about political uncertainty: How can they plan
for the long term when the government cannot
agree on a buAdget that lasts for more than a
few weeks? Meanwhile government depart-
ments, as they wait to discover what their budg-
ets will be for the coming year, are saving money
by skimping on maintenance rather than by
firing people or by scaling back what they do.
In many cases apparent reductions in govern-
ment spending are tricks of the light that will
bring higher costs later.
To prevent a repeat of this in the new year,
a 29-member budget conference of both houses
is meant to propose a plan, due by December
13, which would then be voted on by Congress.
The notion of a grand bargain, in which Democ-
rats accept cuts to social spending in exchange
for higher taxes, thereby putting the nation s
finances on a sustainable path, has become the
Capitol Hill equivalent of elevator music --
audible everywhere, but never taken serious-
ly. However, a smaller pact ought to be possible.
That is because the two parties are not quite
as far apart as their rhetoric about irresponsible
spendthrifts and heartless cutters suggests.
The budget conference is being led by Senator
Patty Murray (Democrat-Washington) and Rep-
resentative Paul Ryan (Republican-Wisconsin).
Both have proposed budgets already. Ryan calls
for discretionary spending---spending other
than programmes with funding written into
law---to be US$966 billion in 2014, whereas
Murray wants it to be US$1.058 trillion. The
gap between their plans widens during the next
decade, but it should not be impossible to find
ways to bridge it.
The president has his own budget proposal,
which mixes some things Republicans like, such
as cuts in health-care spending and farm sub-
sidies, with higher taxes, which they detest.
A further possible point of agreement is that
the deep, across-the-board cuts known as the
sequester ought to be replaced. This measure,
which kicked in at the beginning of the year
when a budget deal was not reached, was
designed to be so painful that the two sides
would have to reach a deal; but so far has con-
spicuously failed to work. Some Republicans
quite like the sequester, but that may change
if another US$20 billion is sliced from the
defense budget, as is due to happen in January
unless an agreement can be reached.
One possible deal would be to swap some
cuts to defense, infrastructure and research for
cuts to health spending in the form of more
means testing. Any compromise is likely to
revolve around arguments over the meanings
of words like "spending" and "revenue."
Even a deal like this, which would do little
to address the causes of persistent budget
deficits, would probably be rejected by most
Some think that they are fighting heroically
to stop America from becoming a high-tax,
welfare-dependent European country. Others
look at their districts and worry about facing
a primary challenger from the right.
The vote on the debt ceiling shows why this
fear is rational. Across the country President
Barack Obama received 51 per cent of votes in
2012. In districts held by the 144 House Repub-
licans who voted against raising the debt ceiling,
however, he received only 38 per cent. These
congressmen do not worry about losing a general
election to a Democrat. Conversely, 11 of the 15
most marginal House Republicans, as scored
by the University of Virginia s Center for Politics,
voted with Democrats to raise the debt ceiling.
The electoral math makes it likely that there
will be more standoffs between the two parties
over the budget, each accusing the other of
being unwilling to compromise.
This disguises the fact that there is now a
three-way negotiation going on between the
Democrats and two wings of the Republican
Party. One wing has made it clear that the threat
not to raise the debt ceiling is an empty one.
Faced with a repeat, Republican leaders in Con-
gress will allow a bill to come to the floor of
the House that will pass with Democratic votes.
This reduces the risk that America will default
on its debts because of some legislative mis-
calculation. By Congress s recent standards, that
@2013 Economist Newspaper Ltd. (Distributed by
the New York Times Syndicate)
The shutdown's over. Now what?
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