Thursday, August 4, 2011

Geithner: Terrible Process, Good Result

Whatever else you may think about Tim Geithner, public relations is clearly not one of his strengths. A recent example of this appeared yesterday on the Washington Post op-ed page in an article under Geithner's byline. The article begins: "It was a terrible process, but a good result."

What is the point of making this argument? Hardly anyone, except maybe some of those directly involved, think the debt limit agreement was a good result. Liberals think that cutting current spending in a terrible economy, which shows signs of getting worse, is a horrendous idea. They would do the opposite. They also believe that programs that benefit the poor and the elderly may be threatened. Conservatives believe that the cuts over ten years are too small and do not make the fundamental changes they advocate to programs such as Social Security, Medicare, and Medicaid. They also know that the cuts mandated by this law over a 10-year period could prove illusory; future Congresses can always change the law.

Geithner claims that "[t]he agreement removes the threat of default and lowers the prospect of using the debt limit as an instrument of coercion. It should not be possible for a small minority to threaten catastrophe if the rest of the government decided not to embrace an extreme agenda of austerity and the dismantling of programs for the elderly and the less fortunate." Actually, using the debt limit as a political tool to try to enact one's agenda is only removed for the rest of the current Presidential term under the probably safe assumption that any recession that may be coming in the next year is not so precipitous as to make current budget projections wildly off the mark. But this recent experience makes it more likely, not less, that we will have to suffer through bitter debt limit fights once again, waged by whatever party is not in control of the Executive branch. As I have discussed in a previous posts, this is not the first time we have witnessed bitter debt limit fights, but this one was worse than normal, and the President's opponents can claim some political success. Present and future politicians have noticed.

Moreover, while debt limit fights are not on the agenda for the rest of this presidential term, other cliffhangers are coming. First up are the appropriation bills for the 2012 fiscal year, which begins in October. The political fight over this will take center stage next month. If agreements are not reached, there may be a government shutdown, or at least a partial one. That the Federal Aviation Administration is already in shutdown mode does not augur well.

For those who like these kinds of battles, there is a sequel to the appropriation battles of September. The super committee, created by the debt limit agreement Secretary Geithner praises, is due in late November to come up with proposals to reduce the deficit further. If they deadlock, or if Congress does not pass or the President vetoes whatever the super committee proposes, then mandatory cuts take place. Geithner lauds this as "a powerful mechanism for agreement on tax reforms to strengthen growth, and entitlement reforms to strengthen programs such as Medicare." I guess he thinks policymaking is enhanced if, from time to time, there is the threat of the abyss.

It is likely Congress will be in session until close to Christmas. Even if the super committee deadlocks or the Congress cannot pass its proposal, I suspect that the cuts mandated in the legislation just passed will not happen. Too many constituency groups from across the political spectrum will object. The process is likely to be messy, but Congress in that case will change the law. Perhaps it will create another committee, another deadline, and another threat of the abyss.

I don't see what Geithner thought he was accomplishing with his article. Perhaps it made political appointees at Treasury feel good; if so, they talk too much to each other and have no idea how things look for those following developments but are not part of the process. The argument he makes is not persuasive.

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