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Monday, August 1, 2011

Self-Inflicted Compromise on the Debt-Ceiling

On August 1, 2011, the Republican and Democratic Congressional leaders and the Democratic President came to an agreement--a compromise of sorts--on raising the debt-ceiling and spending. According to the deal, cuts of roughly $920 billion over ten years would be followed either by adopting a twelve-member Congressional committee's recommendations (including possible cuts and revenue increases) or watching another round of automatic across-the-board spending cuts. Structurally, this arrangement is unbalanced with respect to the nature of compromise between the two parties. In short, it proffers a relatively easy out for the Republicans.

Specifically, the "enforcement mechanism" that would automatically activate should the "super" committee's recommendations not be voted and signed into law contains only cuts even though the Democratic position is for a mix of cuts and revenue. In other words, the mechanism itself is biased to the default of one of the parties. The only incentive the Republican party would have to accept the committee's recommendation would be to avoid the military cuts in the automatic cuts. To obviate any revenue increases, even if only for the wealthy, the Republicans in Congress need only scuttle the committee's work or vote it down. The mechanism being counted on as "teeth" for the committee's work to be adopted should have included both across the board cuts AND revenue increases (including on the very rich). The incentive would have been on BOTH parties to work something out in committee.

Therefore, if I am correct, the structure, or arrangement, of the compromise is itself unbalanced, at least from the standpoint of incentives. It would seem that even with the possible cuts to defense, the compromise itself is a win for the Republicans. Once again, Democrats can be left wondering why their representatives gave up the store, or at least kept the door unlocked. In terms of the public option in the health-insurance reform, the matter of breaking up the biggest banks (too big to fail), and finally in permitting a spending-cuts-only outcome to the debt problem, Democrats, it seems to me, have real cause in withholding their votes from "their" man in the White House in 2012. Yet they have no practical alternative absent a primary challenger. They may be in a very tight box in "staying the course," lest they want to risk seeing the keys of the White House store formally change hands to the other party.