Friday, November 18, 2011

Why the Supercommittee May Not Matter

As a follow-up to some of our recent posts, an article in today's Washington Post ( makes it clear that it's reasonably likely that the fiscal "supercommittee" will not be able to reach agreement on spending cuts and, in fact, may not have much incentive to do so.

As Senator Max Baucus commented, "We’re at a time in American history where everybody's afraid — afraid of losing their job — to move toward the center. A deadline is insufficient."

For those with some memory on the subject, they'll recall that an impending government shutdown forced the first budget deal, in April of this year.  Then, in August, the possibility of a default was necessary for the compromise that resulted in the establishment of the supercommittee.

As the Post's article comments, "even normally optimistic aides close to the process conceded that it may be time to pull the plug."

So, let's assume that the supercommittee fails to reach agreement, as seems likely.  What happens next?

Well, here's a likely scenario:

1.  Each side blames the other.

2.  No cuts take place until 2013.

3.  The Democrats go into the 2012 election claiming that the Republicans want to dismantle Social Security and the safety net, while the Republicans claim that the Democrats will raise taxes on the middle class and spend the nation into bankruptcy.

4.  The 2012 election may be one of the few truly important elections in our history, at least from a fiscal standpoint.

Once again, we're reminded that the first law of economics is scarcity: people's demands for goods and services (including from government) is endless, as compared to the available supply.  

And the first law of politics is to ignore the first law of economics.

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