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The Fiscal Commission -- Failure on Multiple Levels

16 Nov 2010
Posted by Andrew Samwick

Stan does a fine job of analyzing how the Bowles-Simpson plan may actually set back efforts to trim long-term deficits.  Brad DeLong is correct when he describes this commission as an "unforced error" by the Obama administration.  At the level of presidential policy and the specific direction of the commission, these are failures primarily in the choice of strategy and tactics rather than failures in defining the objectives.

In a very interesting post last Thursday at Economix, "On the Deficit Commission, a Failure of Will and Not Ideas," Catherinie Rampell wrote:

So why are we still in the same mess?

Because the country’s budget woes are not a failure of wonkish ingenuity, but a failure of political willpower.

The fact that the government is, and has been, spending more than it brings in through taxes is well known, and thanks to a huge, intricately detailed report published regularly by the Congressional Budget Office, we also know just about every possible combination of spending cuts and/or tax increases that will add up to a more balanced budget.

The problem is that just about every potential solution to the long-term fiscal crisis involves severe short-term political pain, in the form of fewer services or higher taxes. And the people in charge of selling these ideas — members of Congress — know that their careers are aligned on the short-term time-frame, not the long-term one.

So the question becomes: How do you get politicians elected on a short-term basis to think about the long-term good of the country, given that short-term and the long-term goals appear to be at odds?

I came to a similar conclusion after spending time in DC at the CEA.  I was recently quoted as follows:

“There seems to be such perennial and widespread dissatisfaction with what happens in Washington, but this is not so much because of a lack of knowledge or understanding but a lack of leadership,” he said.

After his stint in Washington, Samwick found a new way to directly address the issue of leadership by becoming director of the Rockefeller Center.

“I thought the center was an interesting place where you can continue to have an impact on how well people understand the issues that are the basis of a lot of government policy,” he said. “You can also do quite a lot to make Dartmouth students more capable leaders, as they inevitably find themselves in positions where displaying leadership would matter quite a lot.”

Rampell calls it "political willpower."  I called it leadership.  Neither is quite right.  To propose the fiscal changes on the scale required to make progress against the long-term deficit is to become not a political leader but a political martyr -- someone whose political life is ended for the sake of drawing attention to the problem and taking a stand on its solution.  What makes a leader into a martyr is the fatal response of the followers. 

And we -- voters -- are the followers.  As a distinguished visitor to campus recently put it, "[W]hat we’re better at as followers is pulling down.  Followers haven’t figured out how to use some of this power and influence and translate it into something constructive.”  We are the ones who have made it such that politicians' "careers are aligned on the short-term time-frame, not the long-term one."  Ezra Klein has been all over this -- the voting public doesn't prioritize the deficit.  And as long as that's true, why would we expect any effort, whether in the commission or the legislature, to have much success?

They may not exactly be innocents facing martyrdom

...a failure of political willpower ... a lack of leadership

The fundamental reason why we haven't seen any progress on the debt/deficit, and aren't likely to for a good while yet, is right here...
~~~~

Q #9: Of all the problems facing this country today, which one do you most want the new Congress to concentrate on first?
....
Budget Deficit/National Debt 4%
....
CBS News poll
~~~~~

the people in charge of selling these ideas — members of Congress — know that their careers are aligned on the short-term time-frame...

To propose the fiscal changes on the scale required to make progress against the long-term deficit is to become not a political leader but a political martyr

Oh, I wouldn't portray them as innocent victims caught in the political process.

Why do only 4% of voters think the budget debt is a serious problem? Because both political parties have been profiting by telling them that forever, and still are.

Orszag recently wrote that he was surprised that over the last two years the Democrats had *no interest whatsoever* in fixing Social Security, even though they had the most power they’ll ever have again before it can't be avoided, and had the best chance they’ll ever have to do it totally on the terms *they* wanted. Now that chance is gone forever.

They just weren’t interested. Well, it’s obvious why, if SS needs fixing then it’s broken, and if it's broken then maybe Medicare is broken, etc. That hurts before the 2010 election, who on the left is going to stand for that?

Where was the Democratic constituency for permanently fixing SS on the best possible terms for the left during 2009 and 2010? There wasn't one -- because the Democratic politicians keep telling their constituents there is no problem to fix. They’d rather fix SS on much *worse* terms by their standards in the future than trouble their base today. That’s the relation of politics to substance. Just like Republican politicians keep telling their base there is no problem a tax cut can't cure.

These guys aren't innocent victims of the system, "martyrs", they created the system for their own profit. Short-term profit, of course. The long-term costs will fall on someone else and they know it.

People say there is no bipartisanship in DC, but there is plenty of it when it suits both parties’ agenda. The parties bipartisanly suppress concern about the debt. Else how could the Republicans keep pushing tax cuts as the cure to all ills and the Democrats pretend entitlements are sustainable while creating new ones? That's why that figure is 4%.

When the Republicans (progressively) propose modest reduction of Warren Buffett's SS benefits and the Democrats savage them as wanting to destroy SS to make the old eat cat food ... and then the Democrats propose the most modest of cuts to Medicare to have the Republicans in turn savage them for wanting to deny old people their medicine, these politicians aren't "martyrs" caught in a system that can't deal with the debt, they are stoking that system and firing it up for their own gain.

as long as that's true, why would we expect any effort, whether in the commission or the legislature, to have much success?

Dilbert says: Let Judge Judy run budget reform. On TV. She could call politicians from each side up one after the other, and when they start dissembling Judge Judy-ize them in front of the entire nation.

That's probably the most credible proposal I've heard yet.


How to Think Long Term

Yes, short-term thinking which represents political expediency rather than long-term thinking which represents political leadership is the key structural problem with the budget (and with a lot of other problems in government, too). Rampell asks how these two can be reconciled for the good of the country.

The only way to change this is by structurally changing the political system. I think term limits is the only feasible solution. Have you noticed how the rhetoric and priorities of politicians change when they announce they will retire? They become refreshingly more candid and their interests are better aligned with the good of the country rather than their own re-election chances. As a recent case in point, read some the things Evan Bayh has been saying since he announced that he would retire after the end of this session of the Senate.

The average voter will always vote against those spending or taxing measures that will negatively affect his or her pocket book. That's another reason we're in this mess and why politicians have to pander to them. But, there is actually quite a bit of support for term limits because there is no direct link between such a structural change and one's personal bank account.


How to Think Long Term

The only way to change this is by structurally changing the political system. I think term limits...

Or maybe have the pensions of all government employees, from Senators on down, 100% permanently invested in long-term T-bonds. If the bonds ever lose value their pensions go down with 'em. That might get some interest groups thinking beyond the next election.




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