Political System Failure: Now What?

ME.  The Congressional Super-Committee failed to find a spending and tax plan for an additional $1.2 billion in savings over the next ten years.  I’m beginning to think Luther Tweeten was right in advocating an appointed and more insular policymaking structure to deal with federal budget issues similar to the Federal Reserve.  The Federal Reserve has a fairly effective decision-making process and system that promotes monetary policy decisions consistent with the long-term interests of the nation.

BF.  It was a total failure. The American political process has worked for 235 years.  The only time compromise failed in the past was the Civil War.  The big difference now is that the issue is not geographical between North and South, but instead it is “we” against “us.”  We used to define politics as the “art of the possible” or the “art of compromise.”  No more.  Our political system has seen emergence of political institutions with capability of corrupting the process to prevent compromise rather than to assure that compromise occurs.  What makes matters worse is that even if we “throw the bums out” in future elections, there will still be no assurance that compromise will occur.  The institutions that have prevented compromise will still remain.

ME.  For once I totally agree. We are just making things more difficult and complicated than they really need to be.  Hypothetically, if we could just get a random sample of 100 citizens in a room and lock them up until they came out with a decision, we might get somewhere.  Overlay the current wealth distribution and out of the 100 people in the room, 1 person would own a third of the wealth, and the next 19 people would own half of the wealth.  So together, 20 out of 100 people would hold 85% of the combined wealth, while the other 80 people would share the 15% residual in total wealth.  No doubt that latter group also includes the 9 unemployed workers.

BF.  Hypotheticals are interesting, but let’s create real impact: Take away Congressional pay and impose a “surtax” on incumbent campaign contributions and political action committees to pay the government’s interest on the debt until long term budget deficit decisions are made.  Congress did not reach a compromise for two reasons.  Grover Norquist, who heads up Americans for Tax Reform, collects massive contributions to assure that Republicans only get elected by making a “no new taxes pledge.” And, AARP similarly collects large contributions that are deployed to scare senior voters, so no Member of Congress gets elected without pledging to protect Social Security and Medicare benefits.  Both groups maintain discipline by opposing those who do not maintain their pledges.

ME. Both groups seemingly have more to lose from a global collapse of credit markets, world depression, and the resulting economic chaos and unrest.  It is unusual for national defense interests to be on the outside of relevant decision-making interests.  Spending on the other interests together is not large enough to solve the deficit picture alone.  We don’t have to look much farther than the riots in the Middle East or Europe to get an idea of what happens when the “Haves” don’t provide some pathways of promise and hope for the “Have-Nots.” One wonders whether politicians who make pledges to both groups are hypocritical, shrewd, or perhaps both. However, status quo spending and taxes are maintained for another year by having the Super-Committee fail.  This may actually help to sustain or stimulate the economy during the coming year more than if an additional $1.2 billion in spending cuts and tax increases had received approval by the Super-Committee and Congress.  

BF.  So the U.S. will continue to “kick the can” on down the road until the next election.  The Bush tax cuts expire at the same time across-the-board sequestration cuts are imposed on defense, Medicare, and other items in 2013.  Each future election provides a fresh opportunity to create a new majority. However, the real action may take place during the lame duck session after the next election outcomes are known.  If lack of progress on budget deficit continues, American voters will become more frustrated.  The prospects for one viewpoint or the other will depend a lot on whether unemployment falls, or begins to rise to ten percent or higher again.  Civil disobedience and unrest are likely to occur more often as economic losses and unemployment rise.

ME.  If we put the random 100 people back in a room, I’ll bet they could figure out how to get the 9 unemployed people back to work.  This is not rocket science. Jobs are created when consumers are less uncertain and spend more; when the private sector invests more in new factories, technologies, and enterprises; and when government spends more to repair roads, schools, or defense systems.  Our economy would be stronger, if we had 9 more people out of 100 employed and earning incomes and spending more rather than sitting on the sidelines creating an economic drag.

BF.   The Concord Coalition is a valiant effort to get “normal people” in a room to solve the deficit problem.  To date, little detectable impact has resulted.  Even though tax rates have been higher in the past and even though we are among the wealthiest nations in the world, apparently contributors to Americans for Tax Reform conclude that the “No New Tax pledge” is a more important priority than creating a more healthy economy or solving deficit problems.  I agree with former Senator Simpson, who headed up the bi-partisan Simpson-Bowles Commission that presented a balanced budget deficit reform plan last year, this is another case of single-issue politics gone wild.

ME.  I see that the “Occupy Wall Street” folks have begun to mobilize their protests in front of national brokerage and financial institutions.  In spite of best efforts, more confrontation will likely occur if unemployment rises.  I would not be surprised to see contributors to Americans for Tax Reform on the updated occupy lists in the future.  Logically, the “Tea Partiers” will have more of an argument if unemployment falls rather than increases.   So has it come to this, “economists handicapping the wing-nuts?”

BF.  No, our economic fate will be determined by inability of Americans for Tax Reform and AARP to break bread and achieve compromise.  We need to focus on causes of the problem instead of the symptoms which only demonstrate that a problem exists.

About the authors: Edelman is a Professor of Economics at Iowa State University and Flinchbaugh is Professor Emeritus of Agricultural Economics at Kansas State University.