One of the bigger issues with the complete lack of consensus from the Democratic establishment as the fiscal cliff nears is that it gives oxygen to a group of right-leaning fiscal scolds who see the opportunity to decimate safety net programs, allegedly in exchange for some tiny giveback on taxes they will describe as balanced. You can see this with the renewed prominence of Erskine Bowles and Alan Simpson, who claim to be working with a bipartisan group of lawmakers.
Two respected former lawmakers whose names have become synonymous with bipartisan compromise in a highly divisive Congress are meeting with dozens of lawmakers to forestall a potential year-end fiscal crisis dubbed “taxmageddon.”
Former Democratic White House chief of staff Erskine Bowles said he and former Republican Senator Alan Simpson, are working with a bipartisan group of 47 Senators and as many House members to frame a compromise on $7 trillion in looming fiscal decisions, Bowles said on CNN’s news program, “Fareed Zakaria GPS.” […]
“I believe this group will come together during the lame duck,” after the November 6 elections, said Bowles, in reference to the congressional session that occurs after an election but before the new members have been sworn in.
I didn’t know that being a chief of staff, losing two Senate races and then becoming an executive at Morgan Stanley made you a “former lawmaker,” but you learn something new every day.
Bowles and Simpson have a similarly muddled view. They said that a failure to act on the fiscal cliff will cause a recession, but of course the fiscal cliff anticipates many of the same kind of deficit-reducing actions present in the plan they devised that never got a vote on the fiscal commission they co-chaired. Somehow, Simpson also brayed about increased inflation and interest rates in that event, which doesn’t logically follow at all. We’ve seen throughout the Great Recession and its aftermath that downturns have led to lower interest rates and the threat of deflation.
But Bowles and Simpson don’t have to be coherent. They have an unearned mantle of responsibility to carry them. The grand bargain of the type they favor has failed miserably any time it’s been put to a vote, either in their fiscal commission or in Congress. Yet still they get a platform to claim that lawmakers will “come together” on their plan, forced by “the markets” (again this makes no sense; the markets have thus far reacted to world events by flying to the safety of the US Treasury bond).
Now, Bowles and Simpson have a powerful ally in former Treasury Secretary Robert Rubin:
Congress’s failure to reach a fiscal “grand bargain” last summer manifested the deep economic-policy divide separating Democrats and Republicans. Fortunately, the so-called fiscal cliff will soon create an extraordinary second opportunity for a breakthrough compromise.
Washington’s continued failure to get our fiscal house in order poses five basic risks. One, government borrowing risks crowding out private investment. Two, our unsustainable fiscal outlook undermines business confidence by creating uncertainty about future policy, economic conditions and our ability to govern, which in turn dampens investment and hiring.
Three, deficits constrain our capacity to make the public investment critical to competitiveness, growth and widespread income gains. Four, deficits hamper our financial ability to cope with economic weakness or geopolitical events. And five, our fiscal position creates a strong potential for some form of severe macroeconomic distress at an unpredictable time: high inflation, high interest rates and low confidence in the future that produce an extended period of slow or negative growth, or a harsh financial crisis.
There’s almost nothing true here. The crowd-out problem hasn’t happened during this business cycle; the confidence fairy has been proven to be a myth, just look at the UK and the Eurozone; Treasury borrowing rates show no sign of a constrained investment capacity, or an inability to cope with events at home or abroad; and inflation has been non-existent. But this is the story that gets told among elites, as a pretext for cuts that disproportionately fall on the side of everyday Americans rather than those elites themselves.
Later in the op-ed, Rubin endorses increases to the top rate of marginal taxes – another country heard from, as this is $375,000, not the $250,000 recommended by the Obama Administration or the $1 million now proffered by Nancy Pelosi – and an increase in dividend and capital gains taxes. Also lurking is the phrase “serious entitlement reform.” I think the goal, like with Bowles-Simpson, is fairly clear. Rubin at least tells a plausible story, deferring the deficit reduction for two years to give the economy room to recover before imposing it. That’s further than most Democrats have been willing to go.