'Fiscal cliff' forever?
The Washington Post, December 5, 2012
Don't tell the kids yet, but there's a chance we're about to enter a political twilight zone previously deemed by science (or at least punditry) to be nothing more than a theoretical possibility. Call it the Endless Cliff Hypothesis.
ECH holds that under certain rare circumstances in a democracy, it's possible to reach a perfectly dysfunctional political equilibrium that thereafter perpetuates itself. It's the political equivalent of the grim equilibrium Keynes famously described, in which an economy becomes stuck in a state of depressed demand and high unemployment which can nonetheless continue indefinitely unless external forces intervene.
In today's stalemate it means the United States would simply roll from "fiscal cliff" to fiscal cliff without end. Crazy as it sounds, an infinite loop of fiscal cliffs is now within view.
Here's the scenario. Recall that all this started in the summer of 2011, when gridlock in the debt talks and the later breakdown of the supercommittee led to creation of the cliff we now face. It seems almost certain that any new deal that is struck, either before January 1 or some time afterwards, will involve some minor near-term "action" or "down payment" combined with the creation of a new fiscal cliff of unpleasant consequences to be triggered sometime in 2013 if a broader deal on tax and entitlement reform is not reached.
This, because a divided Washington needs "a forcing device" to instigate action.
But what will have changed later in 2013 to produce a different outcome? Arguably nothing. And so we have the prospect of another deal with illusory progress later in 2013, along with the creation of the next forcing device. Which eventually forces the next sham deal and the creation of the next forcing device.
And so on. Endless forcing devices that force the creation of new forcing devices. Cliffs that bequeath future cliffs.
If we end up breaching the space-time continuum and enter this tragi-comic fiscal realm, science (or at least punditry) will need answers to two questions. What strange mix of factors will have caused us to enter the Endless Cliff? And what can get us out?
Start with how we got here. Our two major parties have been trending toward parliamentary-style behavior, with more party-line votes and ideological unity. Yet our political institutions don't feature a parliamentary system's ability to actually govern. The minority veto in the Senate, and, in today's case, divided government with the GOP controlling the House, means determined voices can block action. The gerrymandered districts that let the House stay in GOP hands even though Democrats won a majority of votes in last month's congressional races further clogs the arteries. Toss in the fact that the cliff is a totally manufactured "crisis"—unlike real crises, like the ongoing mess in the Euro zone—and the Endless Cliff becomes possible.
In the end, it's a matter of even "forcing devices" proving unable to force real as opposed to pseudo-action when real action can still safely be postponed.
Which brings us to what might break the cycle. In the case of Keynes' depressed economy, the answer was to boost demand through government spending to jolt the economy toward a new equilibrium at higher levels of output and jobs. Are there political equivalents available?
Obviously a stock market meltdown would do the trick, as it did between the first House thumbs-down on TARP in September 2008, and the bill's passage, after an 800 point drop in the Dow, days later. Or we could see a creditor day of reckoning, as befell Greece.
But the truth is that—unlike the banks' situation on the eve of TARP, or Greece running out of cash—the debt situation we face is not urgent in the near-term. In the near-term our problem is slow growth and desperately high unemployment. So markets and creditors, despite some year end jitters, might find they can grow accustomed to a new equilibrium level of hijinks and theater in Washington (so long as the self-induced recession the cliff threatens is kicked down the road, as it will be).
No, if we do enter the Endless Cliff, it may be that only elections have the power to shock us out of it. Americans may have to try one party rule (and its Senate corollary, filibuster reform) to align our officials' parliamentary behavior with an ability to govern and be held accountable.
Again, let me stress, this is all just theoretical. ECH may be a unicorn or a mirage. And if it does happen, the boon for political science and late night comedy would be dwarfed by the damage to America's standing in the world.
But don't say it can't happen. Who would have thought we'd ever have a hostage crisis over the U.S.'s debt ceiling and a ratings downgrade? If, fiscally speaking, you thought the Twilight Zone's Rod Serling was waiting in the wings in the summer of 2011, by now his cigarette is lit, his script is written and the camera's red light is about to blink on.