Another Self-Inflicted Economic Crisis

Charles Blow is spot-on yet again with his latest column in which he bemoans the continuous nature of the self-inflicted economic crises that we have witnessed over the past couple years: first with the debt ceiling and then with the so-called fiscal cliff, a combination of tax increases and cuts to defense spending and Medicare. While yesterday’s vote to stave off a tax increase on the middle class was a success, it was done by kicking the can down the road rather than resolving fights over the debt ceiling and spending cuts. Blow writes:

“Be clear: there is no reason to celebrate. This is a mournful moment. We — and by we I mean Congress, and by Congress I mean the Republicans in Congress — have again demonstrated just how broken and paralyzed our government has become, how beholden to hostage-takers, how vulnerable to extremism.

A fiscal cliff deal was cut at the last possible minute, covering a minimal number of issues. It was far from perfect and barely palatable. It was a compromise, and compromises are inherently imperfect. No one likes the whole of it, but they balance the bad parts against the good and see beyond dissension.

As the fiscal cliff votes came down to the wire, many repeated the aphorism: don’t let the perfect be the enemy of the good. But sadly, we are beyond even that. Now the perfunctory has become the victim of the grueling.

The American people suffered through another moment of manufactured suspense brought on by political malpractice. There was no grand bargain. There was only a begrudging acquiescence.”

Blow goes on to note that the Congress ending on Thursday will be the least productive one in modern history with only 173 public laws past by the end of 2012. Even the “Do Nothing” Congress, which Harry Truman bashed on his way to an electoral victory, enacted 906 laws in their two year period between January 1947 and December 1948. The one main function of Congress, to pass laws, is rendered ineffective by an intransigent group of extremists who are hell-bent on blowing up government itself.

Steps at the U.S. Capitol Building - Washington, D.C.

Now if your goal is to gum up the works of government, one would say that this Congress has done a pretty good job. Many conservatives would be gleeful to see the government shut down and the credit rating of the United States downgraded. But what exactly does that mean for the business community who so dutifully funds the Republican Party?

During the last debt ceiling crisis, in August of 2011, the stock market shaved off over 4 percent of its value, the steepest decline since the start of the recession in 2008. It eroded U.S. GDP growth and slowed the pace of job recovery. With no certainty over fiscal policy, thanks to ideologically rigid politicians, investors are left to seriously wonder whether the U.S. government (i.e. Congress) will make good on its debt obligations. Why would anyone in their right mind invest in a country where every few months there is a new self-inflicted economic crisis?

And let’s be clear on that: the debt ceiling and the so-called “fiscal cliff” are self-inflicted wounds that did not have to happen. In fact, the “fiscal cliff” was created in the aftermath of the debt ceiling debacle of 2011 when Republicans in Congress refused to extend the country’s debt ceiling – even though they had already committed the money in their budgets – unless cuts were made. Now they want to undo the cuts that they themselves had negotiated and extend tax cuts to millionaires. Thankfully, they lost on at least one of those issues but are positioned to yet again drag the country through another economic turmoil over the debt ceiling in roughly two months from now.

Unfortunately, there’s not a simple political solution, either. Many of the Republicans who would be willing to vote for an economically sane approach to governance fear a primary challenge from the right more than they do a general election from the left. This is due in large part thanks to gerrymandered districts, created by politicians in statehouses across the country for political gain to both ensure their party’s control and to protect incumbents. Unless the Supreme Court rules that gerrymandering is unconstitutional (it clearly is a violation of the First Amendment when politicians can silence voters through the lines that they draw) or voters pass state-by-state referendums to create independent map-drawing commissions, we are likely to continue to see a Congress that is inflexible and unresponsive to the demands of voters.

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