Crisis Mode: The US Government Needs to Stop Inventing Crises That Threaten Shutdown or Default

Yesterday, the Senate resolved its debate about offsetting disaster relief spending, averting a shutdown of the Federal Government. This dispute over a few billion dollars ended the third major political crisis of 2011 after the shutdown crisis in April and the unprecedented debt ceiling debate in July and August.

But even though this quarrel was resolved, the next crisis is only a few months away. Congress must approve its 2012 budget by November 18; per the August budget deal, Congress must find $21 billion in cuts. This is a relatively small amount—which leaves open the possibility that cultural issues could come into play, as Planned Parenthood and NPR did in the April budget fight. Furthermore, the Supercommittee’s proposal to cut $1.2 trillion over ten years will be due to Congress at about this time; it will need to be approved by December 23. In other words, we could have a prolonged crisis on our hands.

It is clear that this political brinkmanship is harming our economy. Aside from the direct costs of shutdowns and preparations for them (Ezra Klein has a good summary of them), these crises do significant harm to consumer confidence. Between July and August of this year, the Conference Board’s Consumer Confidence rating fell from 59 to 44, its lowest level since 2009. To have such a decline going into the holiday shopping season could be devastating.
 
These crises also introduce uncertainty for businesses, hindering investment. Reducing uncertainty gets a lot of play as a talking point, but it seems to be forgotten by Congress whenever they see an opportunity for a fight.

How can we fix this problem? Part of the problem is Congress itself, as designed by the framers. With all of the checks and balances—and the modern introduction of the filibuster—the default course of action for Congress is to do nothing. In situations where we need Congress to affirmatively act in order to avert a disaster, these checks and balances can cause a crisis.

One solution, as former OMB chair Peter Orzag wrote recently, is to rely more on automatic measures that kick in counter-cyclically, and to use nonpolitical commissions like the Defense Base Closure and Realignment Commission, whenever possible. This solution would require Congress to vote to strip itself of power. Plainly, I don’t see that happening anytime soon.

Instead, we need to pull off the band-aid all at once. Instead of the Supercommittee cutting about $1.2 trillion, it should aim to reduce the deficit by $4 trillion or so over ten years, which would stabilize the debt/GDP ratio. Everything should be on the table, from taxes to defense to entitlements. At the end of the day, it would be far better to have one debate about cutting $4 trillion than four debates about cutting $1 trillion each. This would attack one of huge causes of the continued economic malaise: fear. Is Congress up to the task?

Bob Pozen is a Senior Lecturer at Harvard Business School and a Senior Fellow at the Brookings Institution. His latest book, Extreme Productivity, is now available at your favorite local or online bookstore.

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