Published November 10, 2011
There will be high drama. There will be dueling press conferences. There will be last minute, all-nighter negotiations. There will be accusations of negotiations undertaken in bad faith. Angry, pious negotiators will theatrically storm out of closed-door meetings.
The media will breathlessly track all of it as if it’s the last quarter-mile of a neck and neck Kentucky Derby.
All of this will come to pass in the days leading up to the November 23 deadline for the so-called congressional super committee to come up with a plan to trim $1.2 trillion from the bloated and deficit-addled U.S. budget over the next 10 years.
And, like every recent effort at forging a bipartisan compromise to balance the budget, it will almost certainly end in failure.
No one knows for certain how that failure will be disguised, indeed, spun as success. But almost no one (at least among those paying attention to this sort of thing, anyway) believes the super committee will meet its goal.
“Everyone I’ve talked to on Wall Street -- literally no one expects the super committee to come up with much of anything,” said Stan Collender, a partner at Qorvis Communications and a former staffer to both the House and Senate Budget Committees.
The expectations for success are so low that Collender predicted stock markets will not react at all on Nov. 23 when the deadline passes and the super committee admits its impotency.
“Markets work off expectations rather than responding to actual events,” he said.
In other words, when the super committee acknowledges its failure, it will come as a surprise to exactly no one.
Why should it? Let’s review past failures in this arena.
President Obama and Speaker of the House John Boehner, (R-Ohio) tried and failed last summer to craft a “grand compromise” on budget deficit reduction, an effort that ended in acrimony and forced a last-minute deal to stave off a possible default by the U.S. on its debt.
That deal included the creation of the super committee, a concept so meek and so obvious in its intent to evade and delay responsibility that Standard & Poor’s promptly downgraded the U.S. credit rating.
The Gang of Six, a bi-partisan group of senators who’ve been working on their own budget compromise for months, often seems to come up with good ideas. But those ideas are quickly shot down by hard-liners on either side of the spectrum: there are either too many new taxes or not enough spending cuts.
The Gang of Six’s good ideas rarely last longer than a 24-hour news cycle.
Then there were the recommendations put forth by the National Commission on Fiscal Responsibility and Reform, better known as the Bowles-Simpson Committee. Of all the recent efforts, this one seemed the most thorough, the most bi-partisan and the most likely to gain some traction in otherwise polarized Washington, D.C.
A draft of the plan called for across the board spending cuts, including steep cuts to the defense budget and reducing the federal work force by 10%. Even more significantly, the commission dared to take on entitlements, calling for sharp cost controls to the hugely-popular Medicaid program and significant adjustments to Social Security that would have raised the retirement age.
But, strangely (and self-defeatingly), the document needed to be approved by a super-majority of 14 of its 18 participants. It failed with perhaps the most notable vote in opposition coming from Representative Paul Ryan, (R-Wis.), widely viewed at the time as a rare voice of reason on the supremely contentious deficit reduction issue.
If, as expected, the super committee can’t agree on just the right mix of spending cuts and tax hikes, the default mechanism embedded in the process when the committee was formed in August calls for an automatic $1.2 trillion in across-the-board cuts.
Collender said specific industries stand to benefit if the super committee reaches an agreement, namely defense contractors. Cuts to defense spending are almost always anathema to politicians, so the military will almost certainly be spared if the politicians have a say. That won’t be the case if no agreement is reached and the automatic cuts kick in.
But wait. The across-the-board cuts aren’t scheduled to go into effect until 2013, plenty of time for lobbyists to influence Congress to scale back on cuts that directly affect their clients.
“I don’t think anything happens before the 2012 elections,” Collender predicted.
A widely-held view is that the committee gets nothing done, the across-the-board cuts are set in motion with much fanfare, then one-by-one voted down, ignored or otherwise dismissed over time by Congress.
Collender said the budget logjam can’t be blamed entirely on Congress. Its members, after all, are just representing their constituents, constituents who want other peoples’ taxes raised but not their own, who want government to cut back on spending but not on their Medicare and Social Security benefits, who want more money spent on education but don’t want to pay higher property taxes, etc…
Given all these factors, Collender said of the super committee: “Why did anyone think this would work to begin with?”