Deficit-Cutting, Consensus, and Crisis

“This one is as clear as a bell,” Erskine Bowles, co-chairman of President Obama’s fiscal commission, told the National Governors Association on Sunday in describing the nation’s looming deficit and debt problem.

Bowles was differentiating the fiscal challenge, which is plain for all to see, from the recent economic crisis of collapsing financial markets and a deep recession, which seemed to take virtually everyone by surprise.

What Bowles also did, consciously or otherwise, was raise an age-old question about fiscal policy, one with particular resonance for the current period and the challenge that it presents: will policymakers work together in order to prevent a crisis, or will they merely act in the aftermath of one?

As Richard Darman, budget director to President George H.W. Bush, liked to say (and as many others have attested over the years), “there are two theories about how things happen in Washington: consensus or crisis.”

Under the former, policymakers of both parties agree to compromise their core principles – for Republicans, opposition to tax increases; for Democrats, opposition to entitlement cuts – for the greater good of deficit reduction. Under the latter, policymakers are forced to take action in response to a steep rise in interest rates, a sharp drop in the dollar, or another crisis that is induced by our fiscal profligacy.

We have witnessed both theories in action.

On the consensus front, the major deficit-reduction legislation of recent decades – including the budget deals of 1990 and 1993 and the tax increase of 1982 that was designed to recoup much of the lost revenue from President Reagan’s tax cut of a year earlier – was crafted in an atmosphere largely devoid of crisis (indeed, specifically to avoid a crisis that policymakers feared could well occur if they did not act).

On the crisis front, policymakers rescued Social Security in 1983 when the system was just months from bankruptcy, and they crafted a modest deficit-reduction package in the aftermath of a stock market crash in late 1987.

But if consensus has outweighed crisis as the precipitating factor in deficit reduction over the last three decades, policymakers have often sought to invent crises as a way to generate urgency and force action. Indeed, any connection between budget deficits and the 1987 stock market crash was tenuous at best, but that didn’t stop budget “hawks” from using the crash as an excuse to push for deficit reduction.

We are now in the next phase of testing the theory of consensus versus crisis as the motivating factor for deficit-cutting – or, to put it another way, whether we can build consensus in the absence of crisis.

  • The drive for consensus is why Bowles, President Clinton’s former chief of staff, and his co-chairman, former Republican Senator Alan Simpson, are leading a bipartisan commission that is charged with crafting a deficit-cutting plan by year-end.
  • It’s why former Clinton budget director Alice Rivlin is co-chairing another fiscal commission, with much the same goal, with former Republican Senator Pete Domenici under the auspices of the Bipartisan Policy Center.
  • It’s why two earlier private-sector fiscal commissions have already issued their blueprints for deficit reduction.
  • It’s why America Speaks, a non-profit that seeks public engagement on critical public issues, solicited public input on deficit-cutting options as part of a national town hall meeting late last month.
  • It’s why other policy organizations of the left and right are holding conferences and seminars, and why their experts are writing papers and op-eds, on the fiscal challenges before us.

The issue is whether – compared to the eras of Reagan, Bush (the first), and Clinton, each of them marked by consensus-driven deficit reduction – our politics has sunk into such a state of mindless and bitter partisanship that today’s policymakers simply cannot repeat the fiscal heroism of their forbearers.

We shall see.

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