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Friday, January 18, 2013

Why the euphoria?

At the risk of displaying my ignorance of How Things Work: I do not quite get Dem-side triumphalism in response to the Republican cave on the debt ceiling.

Yes, it's a relief that the GOP will not blow up the world economy late next month.  But what about the sequester, st to take effect in six weeks?

Chris Cillizza quotes a "senior House Republican aide" declaring, "“in the sequestration fight, we have greater leverage because current law is on our side.”   Is everyone in the liberal commentariat sanguine that because half the cuts fall on defense spending, the GOP will never pull the trigger?

Most surprising to me is Paul Krugman's readiness to declare victory on Obama's behalf:
But it appears that [Obama's fiscal cliff] strategy has worked, and it’s the Republicans giving up. I’m happy to concede that the president and team called this one right.

And it’s a big deal. Yes, the GOP could come back on the debt ceiling, but that seems unlikely. It could try to make a big deal of the sequester, but that’s a lot more like the fiscal cliff than it is like the debt ceiling: not good, but not potentially catastrophic, and therefore poor terrain for the “we’re crazier than you are” strategy. And while Republicans could shut down the government, my guess is that Democrats would actually be gleeful at that prospect: the PR would be overwhelmingly favorable for Obama, and again, not much risk of blowing up the world.
I would think that Krugman would regard implementation of the sequester's across-the-board cuts -- $100 billion in the coming year, $1.2 trillion over ten,  executed with "a meat ax not a scalpel," to paraphrase Obama -- as catastrophic indeed.  He's expressed a great deal of angst over far lesser cuts in the last two years. Those cuts would be a serious immediate blow to the recovery and a long-term threat to a host of vital government functions.

On August 2, 2011, the day after the debt ceiling deal was finalized, James Fallows wrote, in an email to me, "Knowing something about how defense budgeting works, I have zero confidence that the triggered cuts in Pentagon spending will ever happen. FWIW."  Is that the general assumption now?

Perhaps the salient point about sequester is that it's more curb than cliff.  According to National Review's Andrew Stiles, "A senior GOP aide notes that sequestration “doesn't have the cliff-like finality” of default and could be more easily dealt with retroactively through legislation to restore defense spending."  IF Republicans want to roll back those defense cuts, though, they'd presumably have to cough up some of the additional revenue Obama is demanding -- unless he hates the defense cuts as much as they do.

Best case, I would think, the two sides agree to postpone the sequester for say nine months and to try once again to reform the tax code and agree on lesser, more targeted spending cuts. That would open up some possibility of Obama winning new revenue under cover of tax reform -- perhaps by capping any given deduction's value at 28%, as Obama has proposed.

Also possible, perhaps: stalemate, whereby the sequester is postponed, the GOP allows no new revenue, and appropriations are sweated out bill by bill, with relatively moderate spending cuts.

Finally, Obama might cut a deal in the next two months, with far less revenue and rather more cuts, including, possibly, an entitlement trim such as chained-CPI,  than his side can easily stomach -- though if the past is any guide, there may be less to those cuts than meets the eye, and a few low-profile stimulus goodies thrown into the mix.

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