The endgame of the deficit fight is going to be so brutal and so predictable I can barely bring myself to watch it. Republicans will say “we won’t raise the debt limit” even though they’ve privately assured Wall Street and the President they will. Democrats will say “this is irresponsible” even though they’ll attach something just as irresponsible to what ultimately passes. And the compromise reform will end up as something the White House wanted anyway.
Harry Reid telegraphed this in his conference call yesterday.
The leader of the Democratic-controlled Senate said Wednesday that any legislation increasing the government’s ability to borrow more money to meet its obligations should contain a cap on how big the deficit can be in any given year.
Majority Leader Harry Reid said the mechanism would involve a new law binding Congress to reduce the deficit. The Nevada Democrat didn’t give further details, but several proposals on Capitol Hill would trigger automatic spending cuts or tax increases if Congress can’t meet spending or deficit targets.
“You would just have a law that says we have to do it,” Reid told reporters in a conference call. “There are all kinds of triggering mechanisms.”
The trigger is essentially the same trigger that President Obama snuck into his fiscal policy speech that beat up on Paul Ryan and sent liberal hearts soaring. A deficit cap is certainly an improvement over a spending cap like Bob Corker’s CAP Act, which White House officials are apparently running around trying to stop. But it’s no prize. It essentially says that, if the deficit hits a certain limit, spending cuts or tax increases would have to ensure to bring the deficit down. Now, knowing what you know about this Congress and to whom it listens, exactly who do you think those spending cuts or tax hikes will harm?
I do believe there’s substantial ability to design a trigger that will never trigger; Washington was practically born to create such loopholes. And maybe that’s what Reid has in mind. But assuming this practically goes through, you’re looking at restraints on the federal government’s ability to run deficits to boost aggregate demand permanently. We’re at a point where the economy has run below optimum demand for going on three years. And the prescription for this is to ensure such a position forever?
The WSJ reports that key Democratic constituencies in Congress, including the New Dems and even the Progressive Caucus (!), are lining up in support of a deficit cap. Maybe it’s a least worst option at this stage. But the word “worst” is still in there.