Sunday Times (London)
March 17, 2013
by Irwin Stelzer
There are times when the absence of really, really bad news passes for good news. This is such a time here in America, at least for those who worry that our fiscal deficits of $1,000,000,000,000 a year will soon have historians referring to the glory that was Washington.
Since Barack Obama was elected, the budget game has been played as follows. The president's budgets fail to win a single vote in the Democratic-controlled Senate, and the House Republicans' budget is not even brought to a vote there — derision on arrival. So the government has been operating without a budget, subject to repeated cliff-hanging deals.
No consideration of how to handle the fact that the creaking baby boomers' demands for new body parts to keep them frisky will soon exceed the funds available to cover that search for the fountain of youth, not to mention an ever-expanding list of other healthcare costs.
The not-so-bad news is that this week the House and Senate will each vote on their own version of the nation's 10-year budget. Obama coolly decided to ignore the legal requirement that by early February he submit his budget to Congress for the fiscal year beginning October 1, the White House announcing he might find it convenient to submit it early next month. Arrest for ignoring the law is unlikely.
The House Republicans would balance the budget by 2023 by cutting spending on high-speed rail and financial regulation, and repealing Obamacare, which is viewed unfavourably by 48% of Americans (45% view it favourably). Pro-repeal Republicans are hoping (dreaming) that repeal will become a feasible goal when Obamacare's cuts in reimbursements to doctors produce extensive queuing for medical care. Mitt Romney's 2012 running mate, the estimably sincere Paul Ryan, whose detailed knowledge of budgetary arcanalia is widely acknowledged, is leading the Republicans' charge. He is sticking to his party's pledge that the $600bn tax increase the president won when Republicans blinked at the edge of the fiscal cliff will be the last such Treasury bonanza in the Age of Obama.
Democrats see things differently. They would cut spending, but by far less than the Republicans, and raise taxes. $1 trillion in cuts — about 25% from defence — plus $1 trillion in new taxes on the wealthy over the next decade would still leave a 2023 deficit of some 2.2% of GDP, down from about 7% now and considered sustainable if the economy grows at that rate. The Democrats' wish list includes another $100bn stimulus.
These competing budgets are the numerical reflections of very different views of the role of government. The Democrats are set on providing Obama with sufficient tax revenues to fund his vision of an expanded entitlement state, covering all Americans from day care, through university, into public sector and subsidised green jobs, their healthcare and pensions provided by government — Winston Churchill's phrase "from the cradle to the grave" just about covers it, though pre-natal would be a more accurate description of the president's starting point.
Republicans have given up any thought of shrinking the state: their budget actually allows for government spending to increase at an annual rate of 3%-4% over the next 10 years. Leviathan will not expire for lack of sustenance. But Ryan and his Republican allies are determined to shrink the government's share of GDP from its current level of more than 23% to a bit less than 20% by 2023 — bigger government, but smaller relative to the size of the economy.
Given the gap — no, chasm — separating the parties' notions of the role of the state, how it is to be funded, when and where means testing is appropriate, one could conclude that this is no different from recent blame-gaming. And well it might prove. And yet, and yet...
For one thing, the president can no longer count on his overwhelming popularity relative to a Republican House of Representatives to allow him another win such as he chalked up in the fiscal cliff battle, which culminated in tax increases. He dissipated a good part of that popular edge when he threatened that mandated across-the-board cuts in some spending, known as the sequester, would end meat inspections, create security queues at airports and force widespread layoffs of teachers.
Either out of pique or a macho attempt to show just who is boss, the president closed the White House to student tours, sending disappointed kids home without a visit to what they had been told is "their house". Cost saving: $18,000 a week — trivial compared with the $1m taxpayers spent a few weeks earlier to fly the president to Florida for a round of golf with Tiger Woods. Such petty displays shaved the president's edge over Republicans as an economic manager from 18 points to a mere four, forcing him to deal with his opponents rather than excoriate and ignore them.
Then there is the question of defence spending. Ryan has retreated from his 2012 campaign insistence on big increases and is accepting caps, the sequester has the Pentagon working to propose sensible targeted reductions to replace mindless across-the-board slashing, and defence is one area in which Obama welcomes cuts, to free up funds for his welfare state and reduce the nation's ability to engage in what he considers senseless foreign adventures. Room for compromise here.
Entitlements are tougher. The test here will be whether the president can deliver the changes in cost-of-living escalators and age eligibility that he has hinted he favours. Enough Democratic congressmen need his support and political cover for such a deal come 2014 that he just might win enough over to a compromise that also includes removing growth-inhibiting tax loopholes. Dividing the revenues gained between general tax cuts and more spending would require yet another compromise.
All possible. But only in the unlikely event that our politicians revisit their undoubtedly dog-eared copies of Max Weber's essay to remind themselves that politics is the art of compromise.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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