The “supercommittee,” it turned out, wasn’t so super.
By the end, it hardly mattered whether the Joint Select Committee on Deficit Reduction came to a deal. The 12 members had long since decided against “going big.” They were just trying to eke out $1.2 trillion in savings so they could avoid the $1.2 trillion in deep, automatic cuts to defense and domestic spending that would come if they failed…
If that happens, the ratings agencies could decide that, far from simply failing to make any deals, we’re backsliding. And that could lead to another round of downgrades and, eventually, a loss of market confidence in our ability to pay our debts more broadly.
As a recent Goldman Sachs analysis concluded, Moody’s and Standard & Poor’s “have indicated that while a stalemate in the super committee would be negative, they expect $1.2 trillion in planned deficit reduction to materialize through automatic cuts if not through the super committee, so their fiscal outlook should remain unchanged.”
Nor is there reason to think the markets will be particularly rattled. The dysfunction of American government has been priced in at least since the summer’s debt-ceiling debacle…
But what the markets, the rating agencies and ordinary Americans should care about is Congress’s inability to make deals in general. Because over the next few months and years, there are deals that absolutely must be made…
Whatever confidence boost might have come from an agreement is clearly dead. New stimulus is very unlikely. And perhaps most worrisome, the extension of the payroll tax cut and the unemployment benefits may well not happen. That could deal a big hit to growth next year and, alongside further trouble in Europe, toss us back into recession.
Similarly, most economists think we need somewhere in the neighborhood of $4 trillion in deficit reduction over the next decade or so. We don’t necessarily need it right this second; interest rates on Treasury debt are still at near-record lows, indicating that the market considers us a safe bet and isn’t overly concerned by our debt load.
Part of what’s keeping the markets off our back, however, is a series of down payments we have made in recent months: the automatic spending cuts that kick in if the supercommittee fails, for instance. But some Republicans, including Sen. John McCain (R-Ariz.), have indicated that they consider the automatic defense cuts too deep and intend to defuse the trigger.
And apparently, Jon Stewart agrees that the scary-sounding “sequestration” is not nearly as scary as it sounds, for the “trigger” can be simply “de-triggered.” And he points out that perhaps this is (one reason) why people don’t like Congress very much these days. So the next time around, how can we translate this public dissatisfaction into real costs for the politicians who dissatisfy us–so they’ll stop such behavior? The super committee didn’t have to come up with all the policy solutions and certainly didn’t have time to figure all that out. But they could have at least acknowledged their own dysfunction by recommending some rules and processes–which could have been voted on and adopted as law even before any fiscal policy options were considered–to help break this endless cycle of promises and disappointments.
So even though most of us thought it unlikely that the super committee would actually “go big,” it still feels like a gigantic missed opportunity that they didn’t at least put a procedural “step stool” in place. I’m not really sure what’s going to happen now, even though what needs to happen hasn’t at all changed.