Thursday, June 30, 2011

I’m disgusted

It’s always helpful to get an outsider’s perspective on a situation you’re bogged down in.  They can often see the forest for the trees when you can’t.

A recent editorial in the British newsweekly The Economist (World Economy: Sticky Patch or Meltdown?) did just that.  I was especially struck by these words near the end of the piece:

The current battle over raising the federal government’s debt ceiling is driven not by careful consideration of the economics but by ideology and brinkmanship. Democrats refuse to consider serious spending reform. Republicans reject higher taxes. Many tea-party types would rather see America’s government default than compromise on spending.

The result is a perilous stand-off—and a growing danger that America will have to make drastic short-term spending cuts, or even find itself forced into a technical default. ...

This dangerous political brinkmanship could also have a damaging effect by creating uncertainty. Companies are currently sitting on piles of cash because they are wondering how strong economic growth will be. Politics gives them more reason to sit on their hands rather than investing and hiring immediately, providing a boost the world economy sorely needs.

One of the first things I learned in business school is that the market hates uncertainty, so The Economist’s raising this potential effect above the many struck home for me.  They continued:

There is a real risk that the politicians’ pig-headedness could lead to disaster. The odds of a catastrophe—harsh fiscal tightening in America, or a crash in the euro zone—may not be high, but neither are they negligible. Though economic logic suggests that the world economy is just going through a sticky patch, squabbling politicians could all too easily turn it into a meltdown.

Then yesterday morning, as if on cue, this appeared in First Read from NBC:

Remember the GOP talking points on "certainty?"  [Over] the past year, John Boehner and Republicans have railed against the Obama administration’s policies (on health care, on the financial industry), arguing they create uncertainty for the business community. “We're calling for an end to the threat of tax hikes -- and a fundamental reform of the tax code -- to provide certainty to those in our country who create jobs," Boehner said in May. “We need to move forward on those policies that will give our small businesses the certainty to create those jobs,” he added earlier this month. “We need to stop the regulations to provide more certainty for America's job creators,” he noted two week ago. But the issue of "certainty" is not being brought up now by Republicans when it comes to the debt ceiling. If anything, despite calls from the Wall Street and business communities to CREATE certainty by taking this debt ceiling issue off the table sooner rather than later, the GOP is now doubling-down on creating a LACK of certainty for now as a way to gain leverage in the talks with the White House.

In fact:

Deadline? What deadline? Yesterday, Boehner called the Aug. 2 debt-ceiling date an “artificial” deadline. "Nobody believes the United States is going to walk away from its obligations," Boehner said in an interview taped for the "Hannity" show on Fox News Channel. "Dealing with this debt problem and this deficit problem is far more important than meeting some artificial date created by the Treasury secretary." Similarly, a GOP Hill source in the know told First Read yesterday that the Aug. 2 drop-dead debt-ceiling date is not likely as hard a date as Treasury is leading on. It could be pushed to mid-August, the source said. (But a Treasury Department official says they’re not setting the deadline. “It is purely a function of the government's cash flows,” the official tells us. “We will provide an update on the debt-ceiling outlook at the beginning of July, as we have done at the beginning of each month this year, but it is unlikely that the date will move by more than a day or two -- if at all.)

This brinkmanship is really unbelievable ... but as The Economist pointed out, both Democrats and Republicans have to compromise to get this done.

I’m not hopeful.  After I listened to the President’s news conference on CSPAN, I listened to the Republicans’ and Democrats’ press conferences on the deficit/debt ceiling situation.   There I was, all revved up about the President’s tough talk about how both sides had to make the tough decisions and “just get it done,” and what do I hear?

First that the Republicans have decided that now’s the time to talk about a balanced-budget amendment to the Constitution.  And then that the Democrats have decided that it’s helpful to challenge the Republicans to include a repeal of ethanol subsidies as a part of a final deal on the debt limit.

Those are the high-minded, unselfish, helpful ideas our leaders have to offer 30 days before we hit the debt ceiling??

I’m disgusted with all of them.