Strengthening Constitutional Self-Government

No Left Turns

Economy

Supercommittee Ends; Superelection Begins

"Retrospective determinism" is the term historians use to caution against the mistake of treating the fact that something did happen as proof that it had to happen. Don't forget, in other words, that the chain of events leading to a particular denouement included choices and contingencies, many of which could have gone this way rather than that way, possibly altering the final outcome.

Sometimes, though, it really is hard to see how events could have turned out differently. Congressional and White House negotiators spent the summer trying to come up with a "grand bargain" to, in the short term, raise the debt ceiling and, over the coming decade, make the national debt a shrinking portion, not a growing one, of the U.S. Gross Domestic Product. They couldn't strike that deal, so they agreed to raise the debt ceiling, in stages, by $2.1 trillion over the coming year. In exchange, the deal met the demand by the Republican Speaker of the House, John Boehner, that every dollar by which the debt ceiling was increased be matched by a dollar of deficit reduction. 

The August 2011 agreement specified cuts in spending to many, though not all, federal programs.  Additional deficit cuts would either happen automatically, if Congress did nothing, or according to the plans devised by a congressional "supercommittee" that was evenly divided in every way: six members of the House, three from each party; and six senators, three from each party. If the supercommittee came up with a plan that reduced the deficit by at least $1.2 trillion, Congress could vote it up or down - but not amend it - and the president could sign or veto the law if Congress passed it.

The failure of the supercommittee, confirmed this week, was foreordained in the sense that the overlap between the list of all the deficit plans congressional Democrats could agree to, and all the plans Republicans could agree to, turned out to be a null set. There was, most fundamentally, no way to split the difference between the Democrats' insistence that any deficit reduction plan had to include some tax increases and the Republicans' insistence that no tax increase could be part of the plan.

The supercommittee's failure to agree on a deal that the full Congress could vote on means that the automatic cuts agreed upon in August are supposed to take effect in 2013. The structure of those cuts was designed to be unpleasant enough that the supercommittee members would have real incentives to come up with a bipartisan plan. At the same time they reflected how each party thinks about what its highest priority does and does not include.

The automatic cuts will affect a lot of federal discretionary spending, but not such big safety net programs as Social Security and Medicaid. Democrats give highest priority to the entitlement programs for two reasons, one political, the other psychological. The political reason is that it's easy to rally voters, especially older ones, against the threat of cuts to these programs. The psychological one is that Democrats regard these programs as their party's most glorious achievements in the 20th century. To acquiesce in curtailing or restructuring them would put a question mark where Democrats want an exclamation point. The problem with protecting entitlements at all costs, however, is that those costs will eventually include some discretionary domestic programs that Democrats believe are vital to the nation's well-being, as Mark Schmitt has argued

The gamble in setting up the supercommittee was that at least some Democrats would be be so opposed to those domestic cuts that they would vote for entitlement reductions as the lesser of two evils. That's not what happened. The other part of the gamble was that Republicans would be so opposed to automatic cuts in defense spending over the coming decade that they would vote for tax increases as the lesser of two evils. That didn't happen, either. As Peter Beinart contended, Republicans have reached the point where national security concerns have been subordinated to the mission of limiting government and holding the line against tax increases. 

That Congress was amenable to serious cuts in discretionary spending on both domestic and defense programs may be construed as an indication that Capitol Hill, for the time being, is content to live with the modest curtailment of deficit spending that results when entitlement cuts and tax increases are both off the table. It could, on the other hand, mean that Congress is content to live with this padlock on future spending because it knows that it will always possess the key to that lock. Both parties, that is, feel that they'll figure out how to avoid the inevitable spending cuts that are supposed to begin in 2013. The history of past efforts to force spending discipline on Congress by threatening automatic, across-the-board spending cuts, such as the Gramm-Rudman limits of the 1980s, gives every reason to believe that Congress can figure out a way around the limits it imposes on itself.

Another sense in which the supercommittee's failure was baked in the cake was that its stalemate is a pretty accurate reflection of the electorate's unresolved marching orders about what the government should do. Republicans prevailed in the elections of 2004 and 2010, Democrats in the elections of 2006 and 2008. With a Democratic president, a Democratic majority in the Senate, and a Republican majority in the House, the voters have given partial, ambiguous endorsements to both party's approaches, but clear, unequivocal support to neither. This ambivalence is not surprising. Clear support for the Democrats would mean big tax increases, and clear support for the Republicans would mean big entitlement cuts. Neither will be pleasant, and the desire to postpone having to choose is understandable.

Nonetheless, the financial pages remind us every day that sovereign debt crises are hard for democracies to avoid, but really, really hard for them to solve. The voters are running out of elections cycles in which they can decide by not deciding. Now that all politics is fiscal, the 2012 election is likely to be dominated by the choice between the parties' mutually exclusive approaches to taxing and spending.
Categories > Economy

Discussions - 5 Comments

I agree with most of that...

On the other hand I think "retrospective determinism" is one of the strongest kinds.

That is the proposition that if something did happen, it had to happen seems to stand on more solid ground than other forms of the deterministic propositions, i.e. assertions: (for example) "The voters are running out of elections cycles in which they can decide by not deciding." See also "The problem with protecting entitlements at all costs, however, is that those costs will eventually include some discretionary domestic programs that Democrats believe are vital to the nation's well-being, as Mark Schmitt has argued."

That is "prospective determinism" is always weaker than "retrospective determinism", thus the common folks saying: "Hindsight is 20/20".

I was much more certain that the supercomittee would fail, than I was or am certain that deficits are even an issue.

Not only have voters failed to unambiguously crown republicans or democrats, they have yet to really announce support for the deficit hawk position, apparently embraced by both democrats and republicans.

Consider this statement: "Clear support for the Democrats would mean big tax increases, and clear support for the Republicans would mean big entitlement cuts."

Whatever its merits, its determinism is weaker than prospective determinism. This is because you assume all the democrats are deficit hawks, or that all democrats support big tax increases (something that as a matter of fact has not occured under Obama). In addition Republicans have yet to really make big entitlement cuts. (but the political wisdom and campaign rhetoric claims they will).

So here I would say that retrospective determinism has undermined your prospective deterministic claim (and continues to do so).

I would not want to vote for a democrat or a republican who would seek to raise taxes or cut spending in the midst of an ongoing recession (defined as a period when unemployment is above 7%, or 2% above the "non-inflationary/sweet spot 5%).

I would also not want to vote for a democrat or a republican who would consider the deficit to be an issue post-1971. Republicans and Democrats are entitled to their own opinions, but they are not entitled to their own facts. The United States, unlike Greece is monetarily sovereign. The deficit is essentially not a seperate question from inflation.

Not only can the United States government borrow money at 2% (fact) but this fact makes it unconscionable to raise taxes on small business that depend upon lines of credit in the neighborhood of 9%. In point of fact mechanically I don't think the government even needs to borrow money. (you should look into this). Nor does the government absolutely need to tax, but borrowing and taxation may be long established and wise methods of public finance that provide additional options and flexibility to policy makers.

There is also very little good reason to go around declaring or issueing Jihad's against government agencies or federal spending in general. This is ham fisted. If you can't win by putting foward a good argument in notice and comment rule making, quit going around raving like a fool about lightbulbs or water. I am sympathetic to the libertarian/right wing position, but after looking at these things, I hardly think the corporations get the short end of the stick. America supports this proposition, just as it supports the proposition that sometimes the refs suck, and cost you the game...but suck it up and move on. You can't go around blaming the refs for all your losses. I am with Obama when it comes to using a scalpel and not a meat cleaver.

Not only has the federal government countinued to be able to to borrow at 2%, but the dollar index has moved up from 75 to 80.

Reducing the amount of dollars in circulation either by raising taxes (thus destroying dollars) or cutting spending (thus failling to spend them) is not some sort of bright line rule for good statesmanship.

"Neither will be pleasant, and the desire to postpone having to choose is understandable."

I agree that neither option would be pleasant, and agree that the desire to postpone is both understandable, and reasonable as a question of fact.

In addition there is absolutely no "determinism" that requires "having to choose" in the first place!!!

Retrospective determinism passes a higher level of scrutiny than whatever mechanism you believe forces the choice on the deficit. (the debt ceilling...a reasonable belief).

I agree that "epic fail" was in the cards because this was nothing but a giant game of "chicken." Unfortunately for the Democrats, a sizable chunk of the GOP no longer believes in the mantra about defense spending. Cut it - they'll have to pay just $350 for a hammer for a while.

The fact is, this is our best "window" to limit the size of government since 1981. That's not a coincidence either. it takes a does of utterly irresponsible spending and liberal daydreaming (i.e., a liberal term as POTUS) to convince enough people that maybe smaller government is better government. On the other hand, I've seen "the people" vacillate so often that I don't have much faith left in the electorate. It's not often that they eschew raw self-interest and vote for the good of the nation. Ultimately, I believe "the people" will kill the host (the productive segment of our population).

This article is incorrect. The Republicans were willing to concede $500 billion in tax increases. It was the Democrats who refused to compromise. The "null set" argument that this article contains is factually incorrect.

It seems a fair enough concession to allow that republicans and democrats may disagree on an individual basis between themselves. So some Republicans might have been willing to concede 500 billion in tax increases. Even then if these tax increases fell mainly upon the middle class democrats would have been loath to accept the deal. No republican for example was willing to lift the cap on the social security tax base, or raise the tax on capital gains. Not that these would have been the best solutions.

No republican presidential candidate was willing to concede $500 billion in tax increases (maybe Huntsman). The "null set" argument seems to be on solid ground.

I am personally opposed to tax increases, and to a great extent also spending cuts that do not involve getting out of Iraq or Afghanistan. (Hussein and Osama are both dead afterall.)

Since 1971, when Nixon took us off the gold standard the following has been true: The currency unit in this case dollars, created by the federal government via deficit spending can only be extinguished by payment of taxes. Therefore, our modern monetary system can best be thought of as a system of debits and credits where government deficit spending credits the private sector and payment of taxes debits the private sector.

It is no coincidence that the most honest and principled Republican who wants to bring us back to libertarian levels of limited government advocates for a return to the gold standard. His name is Ron Paul, and if we still had the gold standard we would have defaulted quite a bit sooner, and the entire logic of the anti-deficit crowd would make a lot more sense. Technically even Ron Paul now supports a commodity market basket currency, in part because using gold as a currency would cause severe deflation and or inflate the price of gold beyond all technical applications (i.e. dentistry).

In any case arbitrarily gunning for a "ballanced budget" is epic folly, since it amounts to conflating the government ballance sheet with that of a state or private household. Because the Federal government is not a state or household it should not manage its balance sheet for its own benefit!!! Rather, taxes and government spending should be managed in a way that most benefits the private sector and encourages private sector prosperity, productivity, innovation and growth.

The national "debt" is perhaps the most deceptive topic of the day, especially from the how will our children ever repay it school.

The truth is: The deficit is already paid for, that is government payment of government workers took productive capacity that could have been directed to other areas, and expended it in the provision of a service for which consideration was given. This consideration immediately set about chasing other goods and services. Or the government consumed resources (say an abrams tank) and this provided income to the manufacturer who in turn provided jobs, and this contributed to demand for depleted uranium or other rare earth elements.

That is the deficit is already in the economy in the form of dollars, and to some extent the projected budget deficit or the projected spending on future medical care is in the economy encouraging long term education in medical fields to meet projected demand. The deficit is paid for in inflation, but yields valuable jobs, services and bennefits, many of which have already been performed.

Higher taxes could take these dollars out of the economy, but higher taxes are not necessary in and of themselves for financing government, only for the control of inflation.

The deficit is NOT already paid for. Saying that it is may be the craziest thing you've ever said, John. You might as well say that any debt is automatically paid for because the money is being spent. The truth is, the Federal government redistributes spending for the sake of some at the expense of the many. The bill will come due, make no mistake. We have creditors and they hold our Treasury bonds. Someone must pay, and it will probably be the next generation (who haven't been around to enjoy this Federal largess).

Leave a Comment

* denotes a required field
 

No TrackBacks
TrackBack URL: http://nlt.ashbrook.org/movabletype/mt-tb.cgi/17172