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Obama's shrug leads to supercommittee failure

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Michael Gerson
November 21, 2011
— Budget deals get done because presidents prod, plead, cajole, demand and threaten. A few phone calls and tepid public statements do not count. It is the executive, not the legislature, that gives the budget process energy and direction. The supercommittee failed primarily because President Obama gave a shrug.

The process was not doomed from the beginning. Senate Majority Leader Harry Reid and House Speaker John Boehner wanted an agreement. Senate Democrats in difficult re-election bids would have preferred to vote for deficit cuts. Vice President Joe Biden’s deficit talks from earlier in the year identified at least $400 billion in relatively easy savings. Republicans, during the supercommittee negotiations, put modest revenue increases of about $300 billion on the table.


These were the ingredients for a deal. But only a president can mix them and apply the heat.


Obama’s cool distance from the supercommittee process is disappointing but not irrational. There was little immediate economic cost to failure, and some possible political advantage.


Administration economists were generally indifferent about the outcome of the negotiations—and right to be. The amount of deficit reduction at issue—$1.2 trillion over 10 years—is small. It amounts to about 8 percent of GDP—essentially a rounding error when compared to a national debt running at 100 percent of GDP. These cuts are automatic—applied either through congressional agreement or by across-the-board spending reductions. And they are not triggered until 2013—meaning that, by definition, they will have no direct economic impact during the president’s re-election campaign.


In contrast, the expiration of payroll tax cuts or unemployment insurance before the end of this year would be a swift economic blow. Avoiding this possibility is the primary focus of the administration. The supercommittee became a sideshow.


The attention of markets is also diverted. A European economic meltdown is more threatening than another, half-expected political failure in Washington—at least for the moment. America’s debt crisis is just as severe as Europe’s but deferred a few years. Europe quickly approaches its fiscal endgame.


Some economists estimate that a European recession, coupled with a decline in the value of the euro, would depress American economic growth by about 0.5 percent. And the problems of the European banking system could be contagious. There are currently 21 financial institutions that act as agents for the U.S. Federal Reserve in the buying and selling of bonds (recently down one with the collapse of Jon Corzine’s MF Global). Eight of the total are European banks—generally undercapitalized and backed by insolvent governments. All of these institutions are exposed, through complex transactions, to the weaknesses of one another.


So the White House and markets have bigger things to worry about than the humiliation of members of the supercommittee—none of whom are likely to put the experience on a resume. And Republicans, though not primarily responsible for the failure, felt little urgency in avoiding it. They are reasonably confident, in Sen. Jon Kyl’s words, they can “work around the sequester” to avoid large, automatic cuts in defense spending. And Republican leaders now seem content to wait on the election of a Republican president and likely gains in the Senate before pursuing a serious budget deal. Why risk internal GOP divisions on the issue of tax revenues in order to seek agreement with a president apparently uninterested in agreement?


On the budget deficit, there are always a thousand reasons for inertia. Obama seems to be calculating that he benefits from running against congressional dysfunction—and Congress seems happy to reinforce his point. Congress, after all, is much less popular than Richard Nixon on the day of his resignation. Since adopting a harsher tone with congressional leaders, Obama’s public approval has stabilized. The political advice the president is receiving is probably sound. His re-election depends on shifting blame for an economy that can’t be defended.


Yet Obama’s strategy depends on a difficult communications task. He is attempting to run against the failures of a political process he is supposed to lead. He wants to campaign against the brokenness of a system he was hired to repair. His critique is a confession of ineffectiveness. Obama’s main self-justification could be turned into an argument against extending his tenure—that he is simply in over his head.


And even if Obama’s re-election strategy succeeds, it only succeeds for a time. Until our fiscal endgame comes.


Michael Gerson is a columnist for the Washington Post Writers Group; email michaelgerson@washpost.com.

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