All right-thinking people are despondent over the collapse of a “big” debt-reduction deal tied to an increase in the federal debt limit. Instead of an historic $4 trillion package that would have tackled some of the country’s toughest long-term fiscal issues – entitlements, tax reform – it looks like we’ll have to settle for only about half that, assuming Democrats and Republicans can agree on anything by August 2.
For the record, I’m bummed, too. But the failure of the Big Deal may not be that big a deal. There is a silver lining.
Let’s face it: Hammering out $4 trillion worth of deficit reduction (over a decade) was always a long shot. The sheer technical challenges were daunting. The politics were worse: too many people on both sides of the aisle in Congress see the 2012 election as a potentially decisive one -- and resisting compromise as the road to victory. Each side wants to campaign in 2012 on a simple, polarizing message (no taxes for the GOP; protect Medicare for Dems). But by its very nature, compromise would make that harder to do.
Despite all of that, we are probably going to wind up with a debt-ceiling deal of some kind. The leaders on both sides seem pretty well committed. So the real short-term disaster scenario -- which is default, not a less-than-optimal slicing of the deficit -- is still unlikely.
The eventual deal (or deals) will probably include the slaying of some of Washington’s most sacred cows, such as farm subsidies and ethanol tax credits. That’s apparently already agreed. In a normal year, such reforms would be considered major progress.
Both parties are now openly discussing entitlement reform, even if they’re far apart on how to achieve it. The political “third rail” has been touched. Particularly notable was President Obama’s acknowledgement at his press conference today that all of the major New Deal/Great Society programs – Medicare, Medicaid and Social Security – must be on the table.
Crucially, he made the argument in progressive terms, instructing members of his own party that they must either set their cherished programs on a more sustainable financial footing or risk losing them altogether. For Obama, that is a more definitive embrace of the sensible fiscal center than he has ever dared before.
Whatever he says publicly, John Boehner, a conservative GOP speaker of the House, privately entertained the idea of more revenues as part of an ultimate solution. That, too, is a bell that can’t be unrung.
So, no, the lion will not lie down with the lamb; the elephant will not lie down with the donkey.we will not have a debt-reduction miracle. But odds are we’ll still have some agreement, perhaps a pretty okay one. (Special optional silver lining for Keynesians: you wouldn’t have wanted a “big” fiscal tightening amid 9.2 percent unemployment anyway.)
Meanwhile, the country is going through a long overdue national seminar on what it will take to get our fiscal house in order — a conversation that isn’t over yet, but may help lay the groundwork for an actual big deal once our politicians have gotten the 2012 election out of their systems.