Notes from Washington: Washington's Competency Problem

by Craig Piercy, ACPA Legislative Advocate

Throughout my career in Washington, I have always assumed that the federal government’s ability to impact the U.S. economy was somewhat overblown.

When I worked on Capitol Hill, I had a front-row seat for the major budget deals and trade agreements of the 1990s. In each instance, supporters predicted that passage would usher in a new era of economic prosperity, while opponents shrieked that the deal would plunge the country deeply into recession.

And yet, with the fullness of time, the actual impact of these “critical junctures in history” was at best incremental. Sure, spending was cut, taxes were raised, tariffs were lowered, but people and corporations went about their daily activities and the American economy took it mostly in stride. Sometimes, the political actors involved paid the ultimate price, as President George H.W. Bush did in 1992 for reneging on his “read my lips” tax pledge. Others, like President Bill Clinton, suffered no long-term ill effects and went on to win a landslide victory in 1996. However, I always saw politics as more of a buoy floating on the waves of the business cycle, as opposed to the underlying cause of the waves itself. The recent debt limit debacle has changed my mind.

As you are no doubt aware, Congress and the White House came perilously close to the August 2 deadline to increase the federal debt limit. We are now over one month removed from the August showdown so we have a good batch of initial polling data. For instance, we know that most Americans were thoroughly disgusted by the process. A late August Washington Post survey asked participants, “How satisfied are you with the way this country’s political system is working? Very satisfied; mostly satisfied; mostly dissatisfied; or very dissatisfied.” 78 percent of respondents indicated they were mostly or very dissatisfied. Only 21 percent indicated their satisfaction, with 2 percent saying they were “very satisfied.” (Who are these people?) This is a near-historical low.

This intense distrust in our political system has in turn eroded our overall confidence in the economy. The Michigan Consumer Sentiment Index, compiled by the University of Michigan, Ann Arbor, since 1952 and considered the gold standard of consumer confidence measures, sank a staggering 15.8 points in the two months surrounding the debt ceiling debate. This drop was larger than those generated by September 11, the Iraqi invasion of Kuwait, the Lehman Brothers collapse and the Iranian hostage crisis.

Historically, the MCSI has only dropped below 65 on four previous occasions, including April 2008, 40-some months ago. On each of these occasions, it has taken two to three years to recover to pre-recession levels.

In short, the conduct of Congress and the White House has really scared the American people, darkening their outlook and causing them to hold back their spending, which will likely extend the current downturn for months or perhaps even years.

Clearly, these numbers have the White House political operation in crisis mode. In a speech before a joint session of Congress in early September, President Obama hastily proposed his American Jobs Act. I say “hastily” because he asked Congress several times to pass it “right away” before he even told them what was in it!

Congressional Republicans have been surprisingly muted in their criticism of the President’s plan. They, too, have probably checked their poll numbers and realized their own political vulnerabilities in 2012.

Frankly, even though the President’s plan has some interesting features, I find it difficult to accept that it would have a measurable short-term positive impact on the economy. A slight rearrangement of the fiscal deck chairs of taxes and spending alone will not lead us out of the darkness. The current downturn is as much psychological as it is economic. The U.S. public has lost faith in its economic and political institutions and those wounds will take a while to heal. Congress and the White House should be focused on demonstrating some basic competence, rather than flailing around for silver bullets. Hey, Congress, how about passing a full year federal budget, rather than a series of stopgap funding resolutions? That way, agencies can make funding announcements on time, giving federal contractors the certainty they need to hire workers for their projects. Hey, White House, how about a one-year moratorium on federal regulations, other than those needed for immediate health and safety? I am pretty sure America could survive for a year without new rules from the federal government telling us what we can and can’t do.

Yes, I still think government’s overall impact on the economy is overblown, but I now realize there is an incompetency exception.