Budget brinkmanship in Washington DC
Oct 02 2013
It is helpful to recall the distinction between a crisis and an emergency. A crisis is a sudden, potentially adverse event that threatens to severely disrupt the operations of an organisation, and possibly its viability. A key feature of a crisis is that the scale of its impact is not knowable in advance. An emergency, on the other hand, is an event whose scale is thought to be within certain limits and for which an effective response is available. Indeed some terrible events, such as forest fires, happen so often that what were initially seen as crises become emergencies over time as expertise is developed in containing the damage done. But can a succession of emergencies lead to a crisis?
The optimistic view about current budget wrangling in Washington DC is that it is an emergency. After all, so the argument goes, the world didn’t come crashing down when the US government shut down in 1995-6 and when the debt ceiling acrimony broke out in 2011. The political fallout from the 1990s imbroglio, many argue, led its instigators (the Republicans) to lose the next presidential election — so ‘dumb politics’ reaped its reward at the ballot box. As for financial markets, while there was certainly more ups and downs during August 2011, US stock market indices had recovered by year end. Finally, the optimists argue, the US central bank will stand ready to stabilise markets and the economy.
There’s a lot to these arguments. After all, not every elected Republican in Congress is a Tea Party member, hates Obama, or wants to repeal Obamacare, the president’s biggest legislative victory and one likely piece of his legacy. Still, there are plenty of reasons for unease and, even if a crisis doesn’t emerge now, confidence that one will be avoided in the future may be misplaced. What may look like an emergency now may well lay the seeds for a crisis later.
Bear in mind that the annual budget process isn’t going away. Nor is Congress’ right to set the legal limit on US Federal borrowing. Both provide levers that no politician will easily give up. Cutting off the flow of money to the US Federal government is going to make any US president sit up and listen, and every Congressmen and Senator knows this. Of course, whether this leverage is used depends on the motives of elected officials, to which I now turn.
Much has been made of how ‘crazy’ the Tea Party and other anti-state Republicans are. That’s sloppy thinking. They want three mutually reinforcing things: to repeal Obamacare, to ‘purify’ the Republican Party of moderates and to shrink the Federal government. The last two objectives go beyond the short term and it is important to see the current government showdown in this light.
Take the purification objective. Like Democrats, Republican candidates for Congress must be elected first by party members before their names are put to the general public. Tea Party Republicans hate moderate Republicans almost as much as the sitting president. As any compromise on the budget will involve some moderate Republicans siding with Obama, the Tea Party will use this fact to undermine the re-election prospects of the moderates who ‘sell out’. The US electorate isn’t the audience that the Tea Party types are addressing now — it is the grass roots of the Republican Party, many of whom are vehemently anti-state.
Even if the purification process takes years, the Tea Party — or whatever anti-government Republican group succeeds it — won’t mind. While they would fight against the election of a future Democratic president, they know this just sets up confrontations with administrations to come, providing more opportunities to embarrass and undermine moderate, deal-making Republicans. Eventually, the Tea Party types may hope that one of their own will end up in the White House, which, at a minimum, would put a break on government expansion.
What this means is that, while a deal may be done in the short term, so long as the US public keeps electing enough anti-government types, then budget battles will recur. Expect more emergencies — but it is worse than that. It’s hard to see what are the guarantees that every battle gets resolved without the US defaulting on its financial obligations.
Indeed, the Tea Party types might welcome default, if only to make it more expensive for the US government to borrow in the future. Markedly less borrowing would curb state spending in a country where much of the population is thought to be opposed to higher taxes. Appeals to patriotism won’t sway them. For the Tea Party types, the broad range of the US government’s programmes are un-American and the borrowing that sustains it is tarnished by the same brush.
We’ve learned in some situations how to turn repeated crises into less scary emergencies. This isn’t the first US budget impasse and many are even treating it like an emergency. This mustn’t blind us, however, to the longer-term game being played by those who want to shrink the US government. They want a crisis and will keep provoking emergencies until they get one.
(The writer is a professor of international trade and economic development at University of St Gallen, Switzerland)