Saturday, December 25, 2010

This Duck Has Flown

I congratulate the departing 111th Congress on its successful lame-duck session--and I question why some are reacting to this unusually rapid legislative progress by suggesting that lame-ducks be banned in the future.

The key to breaking the logjam was the agreement between President Obama and the Republican Senate leadership on the tax cut extension. Minority Leader McConnell had a signed document from all 42 of the Republican senators pledging to block all progress until the tax cut bill was resolved. That held up (mostly) in a couple of test votes, and in practical terms it meant there would be nothing done in the lame-duck unless the President gave in on the sacred tax cut extensions for high-income earners (for some period of time). The deal made--which, somewhat suprisingly, stuck unchanged through both houses of Congress--came out better than expected, in terms of some additional provisions (like extension of unemployment benefits, a temporary reduction in FICA payroll taxes, and accelerated deductions for business expansion) which may actually have some positive effect on stimulating the economy.

Once the deal was done, progress came quickly on the extremely important START2 nuclear arms treaty with Russia, the moderately important repeal of "Don't Ask Don't Tell" allowing gays to serve openly in our armed forces, food safety, defense authorization, and others, too.

Unlike some, I don't see this progress as a harbinger of significant future bipartisan cooperation. These were all provisions which had been out there for some time, the political effects were generally advantageous or relatively unimportant, and they were bills the Democrats needed now--before the new Congress came in. When logs hit slower waters--as with the DREAM Act, to allow legal immigration for some undocumented who wanted to contribute to our country, or with a massive spending bill--the votes for cloture in Senate were not there.

If campaigning is poetry, governing prose, then the outlook for the text of the next two years is going to be something even more boring: repetitive language lessons, or something impenetrable like software manuals, legislative language, or the tax code. Speaking of which, it seems everyone is psyched to tackle that Augean stable, and there is no handy stream to route through it: value-added-tax is a political non-starter (if enacted, it would be a career-killer for its supporters, so it won't be), as is a flat tax, and the mortgage deduction--in these times of continuing declining home values--would be touched only at great danger of electrocution. I see nothing happening on that front, possibly some preliminary progress towards a longer-term plan to reduce the budget deficit that could happen after 2012--one which will require a prolonged, uninterrupted recovery which may not prove possible--and a very long, boring series of failed attempts to legislate budget cuts and crippling provisions against the health insurance reforms passed early this year.

Fortunately, I think the US economy--but not necessarily the stock, capital, or commodity markets--will improve slowly and steadily over the next 18 months. Our Airship of State is approaching the lip of the Great Crater, and the gentle slope might allow us to achieve a successful takeoff. As that happens, we need to ease off the throttle a bit and not pull up too sharply on the flaps--trying for too steep a climb is likely to lead to a fatal, inflationary stall. The tipoff for recognition that we are on a sustainable flight path will be an announcement in about 4-6 months that the Fed will end its Quantitative Easing with the current second round.

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