Optimism returns to fiscal talks

By Felix Salmon
July 19, 2011

When it comes to the fiscal debate in Congress, the worst-case scenario is clear: no agreement at all, and a default. The best-case scenario is also clear: a bipartisan agreement on a credible long-term fiscal plan which allows a large measure of certainty and predictability going forwards. Something along those lines looks more likely today, and markets are rising as a result.

In the middle is the McConnell muddle-through approach — something which avoids immediate disaster but doesn’t address any long-term issues at all. That’s fine — Congress has never been particularly good at addressing long-term issues. But the world is changing, and both Moody’s and S&P have said that the US could lose its triple-A credit rating if it doesn’t make a credible attempt to get a grip on the national debt.

Will Congress make a serious effort at achieving the best-case outcome? I think it will. But there’s risk associated with doing so: the more time and effort you put into a substantive deal, the more difficult it becomes to cobble together a McConnell-style Plan B in the event that it falls apart at the last minute. Congress showed, during the first TARP vote in 2008, that measures which need to get passed can still fail.

My fear here is that if the ambitious plan becomes the main focus of attention, no one will really have a clue how easy or difficult it might be to pivot to Plan B should it fail. The House Republicans, in particular, can be highly unpredictable. So while today’s optimism is warranted, it’s also tinged with danger. This kind of brinkmanship is emphatically not the way that long-term fiscal policy is best hammered out.

3 comments

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I’m going to have to strongly disagree with you here.

The best-case scenario, to me, is no deal in congress at all, and the President citing the 14th amendment to successfully abolish the debt limit altogether, so that the debt limit is never again used to promote partisan bickering.

Having a deal which causes a further stall in the economic recovery is absolutely, positively not a “best-case” scenario. It’s a pretty crappy scenario. If we consider an outright default to be impossible, I’d say it is actually a worst-case scenario.

It’s really sad, Felix, that you’ve bought into the nonsense that deficit cuts are what we need right now. Deficit cuts are the exact opposite of what we need.

Posted by JasonDick | Report as abusive

Just to start off with, I like Obama; he’s a smart guy, a pragmatist, personable, a good writer, and has good comic timing.

What has he done in office? Got healthcare passed (historic), ended the Iraq war, put in a timetable on Afghanistan, got binLaden, smashed al Qaeda to bits, stood up to Israel, and saved the American car industry. Not bad, considering he came into office facing a potential depression, and if he can put a massive deficit reduction plan ‘feather’ in his cap as well…? How the hell could anyone vote for anybody else in 2012? ESPECIALLY considering the potential cast of clowns running against him? He’s not the best pres in history, but he’s better than average and coming after W (who may very well have been the worst pres in history) I’d say that he is the biggest improvement America has ever seen from one pres to the next. I just wish that we could convince the myopic right that he is worth listening to and following rather than them dismissing him without pause.

Posted by CDN_Rebel | Report as abusive

what JasonDick said

Posted by johnhhaskell | Report as abusive