Monday, April 01, 2013

Budget Wars - Appraisal

As American Politics takes the Easter break, it is a good time to appraise where we are and where exactly we might head from here as far as Congressional Budget Wars go.

President Obama accepted the sequester cuts, Republicans claimed victory and President took the hit for rendering effects of sequester rather more dramatically. For sure, there are grumblings and possibly Republicans as well may pay some political price for the sequester cuts. But overall 'it is water under the bridge' and chances of something blowing big out of consequences of sequester are low, if not zero.

President will present his budget in the week after the Easter break and then the battles will be resumed in earnest. Republicans will start their usual arguments as:
- USA is pilling debt by spending more which will land us into big problems pretty soon and
- hence spending cuts and making government small are the only right ways.
Despite some noises in GOP quarters about how GOP needs to go away from the 'message of cuts' to 'growth for Middle class'; I would not hold my breath for that.

President Obama started correctly by arguing that 'reducing debt is not a priority but growth is'. Question is will President continue along those lines, will he explain to Americans how devastating austerity has been to Europeans and will he argue that 'the question is not about whether the government is spending borrowed or tax collected money; but of how efficiently and productively government does that'. He needs to tell Americans, again and again, 'surpluses can be squandered on irrelevant wars, money can be poured into dubious schemes of tax cuts for rich' with no results. Yes, those are all old arguments. But then Republicans are not running exactly on 'freshest ideas' too; they are still playing by the calcified interpretation of Reagan era.

Basically this means President has to wage a political battle to bring Americans on board about spending and debt. As water moves from a higher place to lower, Politics always moves in the direction of inertia in Public Thinking. Today, that inertia among American People is 'debt is bad, spending cuts are necessary'; but that same Public would hardly be ready to accept cuts which 'bite them personally'. Is President Obama going to talk about such Budget Nimbyness? Unless President becomes brave to talk all this, it is difficult to see how he avoids misguided austerity cuts by Republicans. If President fails in persuading Americans, consequences are reasonably clear - President and Democrats would see their 'balanced budget line' not succeeding and there will not be any additional revenue. Any talk of revenue increase and GOP will promptly respond back by saying, 'but he got his revenue in the year end deal'. By same token then will President argue that, 'GOP got their spending cuts too' whenever GOP demands additional cuts in entitlements? Even GOP cannot deny that debt ceiling agreement of 2011 effected around $1.5 Trillion cuts, plus latest sequester cuts of $1.2 Trillion over a decade. With these competing arguments, does it mean then there will be a stalemate?

Stalemate about budget arguments - no tax increase and no cuts in entitlements; President Obama may want to live with it rather than inflicting damage of austerity even though 'Medicare as stimulus' is not exactly a prudent spending by government. The next Democratic contender would then come with some 'imaginative proposals for investing in future', would fund those investments by 'closing tax loop holes' while proposing rational entitlement cuts to contain runaway entitlement spending. That will be the follow-on act to Obama, he himself content with partial revenue increase.

But I doubt the 'stalemate' will be so easily available to the President. This is because Budget Wars have moved from White House to halls of Congress. In the raw match of House Republicans versus Senate Democrats; my reading is Senate Dem hand is weak. Senator Murray was able to pass the budget from Senate and that is a miracle given the fractious nature of Democratic caucus in Senate and their vulnerabilities. Not all blame is to Senate Democrats for no political unity since many of these Democrats are coming from Red States where misguided perception of 'austerity first and no new revenue at any cost' is a fully entrenched political view.

Given that next budget wars will be played strictly through chambers of Congress, this weakness of hand does not augur well for Democrats. They may resist 'entitlement cuts' while 'keep pushing for revenue', but the best they can expect will be 'deep entitlement cuts and minuscule revenue' from Paul Ryan led House. House GOP will tie these budget battles with 'debt ceiling increase' to push Senate Democrats further. While this all is unfolding, President Obama will be essentially a by-stander as he will be loath to side with a losing side.

To avoid such failures, if President Obama communicates successfully with Americans about premature austerity and failure to 'invest in future'; that can right America's course. The only unknown in the case is how much of a mess Republicans want to make of raising debt ceiling. One cannot undermine the ability of Republicans to 'overplay' and bring forth destruction - both to their party and to the country. 

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