The good and the bad of the debt supercommittee’s failure
So the supercommittee? Not so super, it seems. It’s ready to admit defeat. And some think that’s for the best.
Here’s their argument: A bad deal can be worse than no deal at all. And over the last few weeks, the deals offered by both sides were bad deals. They cut too deeply into some areas of government -- like the education, transportation and competitiveness programs in the “non-defense discretionary spending” category -- and did too little on taxes, entitlements, and defense.
Perhaps worse, a bad deal now would make it harder to reach a good deal later. Most economists think we need about $4 trillion of deficit reduction over the next decade or so. There’s a good chance, if the economy doesn’t begin to improve more rapidly, that we need a lot more. There’s little chance that we need a lot less. By the end, the supercommittee was discussing a $1.2 trillion deal. If you add in the spending cuts already agreed to in the debt-ceiling deal, that’s a $2.1 trillion deal. That would have left trillions in deficit reduction undone.
And the trillions it would have left would be in the hardest categories to reach agreement on. Taxes. Entitlements. Defense. Reaching a deal on those items is going to be difficult under the best of circumstances. It will be even harder if all the low-hanging fruit is already picked. If the supercommittee can’t reach a big deal now, better they should give up and go home rather than making it harder for Congress to reach a big deal later.
But before you celebrate the supercommittee’s failure, it’s worth hearing the other side, too.
The economy is weak. But the recovery hasn’t derailed completely. In fact, there’s some evidence that despite the troubles in Europe, we’re picking up steam. But every forecaster will tell you the same thing: These next few months will be very dangerous. If Europe doesn’t get its act together -- and that looks fairly likely right now -- it’s going to be very difficult for us to avoid another recession.
The supercommittee was expected to help with that. Everyone anticipated it would extend the payroll tax cut and unemployment benefits that were agreed to in the 2010 tax deal. Perhaps, if members reached a bigger deal, they would agree to infrastructure investment and further tax cuts. All of that would help us recover. And, according to some economists, so too would the simple sight of Congress coming to an agreement. It would show the markets that even if the European Union’s political system is completely broken, ours isn’t. And that would be worth something.
The supercommittee’s failure throws all of that into doubt. Whatever confidence boost might have come from an agreement is clearly dead. New stimulus is very unlikely. And perhaps most worrying of all, 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 troubles in Europe, toss us back into recession.
But it’s worth taking a step back and realizing this is what we’ve come to: Arguing whether a bad deal is better than no deal. No wonder fewer people approve of Congress than approved of Nixon during Watergate.