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Publicat în 10 mai 2017, 20:53 / 453 elite & idei

Alexandru Georgescu: Trump’s Budget Battles Are Just Beginning

Alexandru Georgescu: Trump’s Budget Battles Are Just Beginning

by Alexandru Georgescu

Maybe it is the effect of being immersed in the now and only being aware of the rough summary of history, but I am not alone in getting the feeling that the political polarization in the Western world has reached such a fever pitch that political coups that took place once in a generation are now occurring with greater frequency. Whether it is the unbalancing of the political establishment or the overt transgression of formal or informal political norms, one gets the feeling that politics has become unhinged.

There would be no point in restraining an apparatus which, like the Praetorian Guard in the days of the Roman Empire, does not wish itself restrained.

This may have something to do with the increase in government power and influence, whether acknowledged or studiously ignored, which makes winning in politics a life and death affair for many interested parties, rather than the humdrum governance of the great national household in times of peace. The great scandal surrounding the monitoring of domestic political actors by intelligence agencies, which started in the late phase of the recent US election, continued into the transition and is smoldering hot in the divisive opening months of the Trump Presidency. To jaded Eastern European, such levels of surveillance and its use for political gain is to be expected, but it provided a significant blow to the credibility and social capital of democratic institutions, formal and informal. A politician must win now; otherwise, he will be at the receiving end of the great surveillance apparatus, ready to expose every secret, whether illegal or simply unflattering. Coming into power allows him to protect himself and his allies, while undermining his enemies. There would be no point in restraining an apparatus which, like the Praetorian Guard in the days of the Roman Empire, does not wish itself restrained. Another factor which has amplified the stakes of political competition is the ability to repay allies and supporters with jobs, budgets, government spending, favorable regulation and so on. Failure to do so leads to one’s ousting from politics, as even a winning campaign message is useless without the money for media exposure, on the ground campaigning and promotion infrastructure.

A new expression of this winner-takes-it-all mentality in the US is the fierce budget battles, which have devolved from a sober household chore into a game of political “chicken”, where the one careening off the cliff is the country itself.

A new expression of this winner-takes-it-all mentality in the US is the fierce budget battles, which have devolved from a sober household chore into a game of political “chicken”, where the one careening off the cliff is the country itself. To this, we add the upcoming issue of the debt ceiling, slated to be in October or possibly later, depending on whether the Treasury can summon the financial wizardry it did to buy Obama time for Trump as well. In practice, the debt ceiling has already been breached, but Trump has some breathing space because the prior Administration introduced contingency measures such as the “Bipartisan Budget Act” on November 2nd, 2015, which voided the legal limit until March 15, 2017 (“Temporary Extension of Public Debt Limit”). Temporarily freed from those shackles, the national debt increased by 8.2% in fiscal year 2016 (1.4 trillion), while the US economy expanded by just 1.6%, according to the US Department of Commerce. Since that point was reached, the Treasury has been taking various measures, such as stopping the government contracting of loans on behalf of distressed municipalities (State and Local Government Series – SLGS) and making payments from its cash reserves (now lower than Apple’s or Google’s sums overseas), as seen in the graph below presenting the situation in mid-March.

Trump’s luck running out?

I have written and spoken a great deal on the obstacles facing Trump in his quixotic quest for national rebalancing through stumbling in the dark, possibly as a sort of apologetics for my support of him. I mentioned:

  • The various bubbles that are forming (auto loans, student debt, round two of mortgage debt);
  • The market hysterics on overvalued assets, which sent the Dow Jones over 20,000 for the first time in history;
  • The reliance of US GDP on consumption which is financed through debt and government transfers, which is reliant on low interest rates, which is a situation not likely to last;
  • Democratic intransigence,
  • Republican traitors,
  • The Deep State (like the intelligence agencies),
  • The Shallow State (the donors and Party nomenclaturists, including Think Tankers),
  • The activist elites promoting him as a new Hitler;
  • The technocratic elites boycotting him;
  • The foreign interests;
  • The structural economy;
  • The usurped power of the judiciary;
  • The imbalances in a polarized and politicized Administration;
  • I even mentioned Israel and the American Jews;
  • And all of the foreign interest groups which are dependent on the continuation of the status-quo in immigration (Mexico, the UN), in trade (Mexico, China, Japan), in security posture (South Korea, Japan, Eastern Europe, Saudi Arabia etc.).

Congress has “the power of the purse”, which is one of the few powers left reasonably unaltered by a rapacious executive and activist judiciary.

And there are a number of other perspectives still to be described. But I had forgotten the debt ceiling and the tendency for budget battles to degenerate into self-defeating stubbornness. This is because, no matter how bloodthirsty the political base may be momentarily, the voters will all punish the politicians they see as responsible when the checks stop coming in.

Trump needs to juggle quite a few live grenades:

  • Funding for his pet causes, especially those which are unpopular with the entire political class (funding for the Wall);
  • Funding for Republican pet causes (the military expansion worth over 54 billion dollars, tax cuts for the rich, tax cuts for companies from 35% to 15% corporate tax rate);
  • Defunding Democratic pet causes (Obamacare subsidies);
  • Finding enough bipartisanism to pass whatever budget is possible without appearing to the voters as the bad guy in the resulting media battles;
  • Finding enough political capital to raise the debt ceiling so the budget can actually be funded – 218 votes in the House of Representatives are hard to find when fiscal conservatives condition raising the ceiling to deep budget cuts in Trump’s supposedly “skinny budget”;
  • Not alienating special interest groups like the military, the unions or the farmers, whom he needs to have a chance at advancing parts of his agenda;
  • Quite possibly lowest on everybody’s minds right now, making the budget work and not digging the US in a deeper hole than it already is after surpassing the 20 trillion dollar debt mark at the beginning of the year. The New York Times estimated that debt will increase by ten trillion in the next decade, which may end up as an overly optimistic assessment, given the way the current fiscal year started.

According to Statista.com, the gist of Trump’s budget proposal can be seen below. The overarching categories obscure what is being funded and what is not. It is tempting to take a reflexive position that one should never cut health or educational spending, but the levels of waste, both systemic and individual, in all areas of government, are astounding. The current political dynamic is such that, even if he wanted to (and there is no indication he does), Trump would find it impossible to effectively reform something like the healthcare system, where legions of middlemen corporations and bureaucracies drive up costs to the highest level on the planet for the worst relative results. This is at the root of why Obamacare does not work and Ryancare/Trumpcare would not have fixed anything – the real problem is not being addressed.

It is important to note that the salaries for legislators and their staff are outside the normal spending approval procedure, so they get paid even if they shut down the government.

It was a Goldman Sachs report which alerted that it was time for a budget battle paired with a debt ceiling battle which was likely to lead to a government shutdown, on top of Trump’s problems in the challenging global security environment. The recent signing of a spending bill that will cover funding until October 1stalleviated many of the fears, but the speculation swirling around markets and the media highlights the anxieties that this possibility instilled into various players. Neither is the deal ironclad, as long as the Republicans seem set to try repealing Obamacare again, and other conservatives fear that the extensive compromises Trump made will undermine them in front of voters. Possibly due to its large presence among the Trump Cabinet and staffers, Goldman Sachs has become the best “town crier” for economic-related issues, such as explaining the proposed tax cuts. Goldman Sachs estimated a low chance of government shutdown when the current budget extension runs out on April 28th, but chances for a shutdown would have increased if the fight continued into May. Simply extending the budget indefinitely on a weekly basis would have been a solution, but it is impossible politically, since it would involve a financing plan bereft of any controversial elements, which means that Trump and the Republicans would effectively be conceding the governance of the US to the Democratic minority. Some might say that this was what they effectively did with the last minute deal covering the rest of the fiscal year. Trying to push a resolution beyond the end of the fiscal year in autumn to get some breathing space to focus on something else would have required further compromise than the already beleaguered Trump has offered, since the slim Republican majority in the Senate would need 8 Democrats to reach the 60 required to pass a bill.

Trump, as an opportunistic centrist playing his cards to his chest, would likely be amenable to some deep concessions, but his Party must be managed accordingly, especially since it was the Republican groups like the Freedom Caucus, headed by nemesis Paul Ryan, who introduced the dead on arrival reform of Obamacare that fixed little and would have made many things worse that they since tried to pass off as Trumpcare. This is a complicated situation, made worse by Goldman’s estimation that the debt ceiling will be reached around October, which will be the zenith of self-defeating political irrationality, since the country cannot afford not to raise it, but the opposition (Democrats and the media) cannot pass on the chance to score political points bemoaning the US fiscal disaster at the expense of those in power. Deutsche Bank was more pessimistic, arguing that chances of a shutdown sometime in the next period were at 40% instead of Goldman’s 25%.

The budget odyssey

If another metaphor will do, the budget battles are about the Parties taking turns to hold a gun to the head of the country and extract as many concessions from the “enemy” (as one’s countrymen are now known in the divided West) as possible. Basically, Congress has “the power of the purse”, which is one of the few powers left reasonably unaltered by a rapacious executive and activist judiciary. For money to be disbursed for welfare, infrastructure, hospital, national parks and so on, Congress must authorize the spending, which generally comes as a package deal in a negotiated settlement containing many different points. Without an agreement on the package, no money can be disbursed, so public servants cannot be paid, pensioners may get sidelined and local government cannot run whatever program the federal government was funding. Even for important investment, a three year financing project will require three yearly appropriations to pass in order to see the project through, which gives opponents plenty of chances to derail it, as has been done with the border wall with Mexico since the Secure Fence Act of 2006 was passed. In the absence of a strong majority in both Houses, no one Party can pass a budget without the other Party, especially if it has internal defectors, which is always the case with these umbrella parties claiming to represent hundreds of millions of people. It is important to note that the salaries for legislators and their staff are outside the normal spending approval procedure, so they get paid even if they shut down the government. While they are haggling over the budget, Congress can pass extension plans (“continuing resolutions”), prolonging the appropriations of the previous budget for an arbitrary number of weeks/months, while they try to finalize the new one.

The American system is, likely, unique in the world in having evolved in a very restrictive manner, to constrain what has become the most profligate government in the world.

The American system is, likely, unique in the world in having evolved in a very restrictive manner, to constrain what has become the most profligate government in the world. For instance, the 1905 “Anti-Deficiency Act” was informed by precedents and Congressional practice going back over a hundred years. It said that the government could not accept volunteer work which would later result in a claim on compensation (a deficiency) which Congress had not budgeted. As early as 1807, Congressman John Randolph railed against the practice of Executive Departments asking government employees to “volunteer” for extra work and petitioning Congress for redress afterwards, likening the executive to a child who will inevitably supersede his allowance knowing that the dutiful grandfather, Congress, will cover the difference. Deficiencies ended up being as much as 37% on top of the existing budgets for institutions. Unpaid labor was one thing, but there was also a practice of acquiring goods and services on credit and presenting Congress with the bill, especially on the part of the military, who found that it was easier to ask for forgiveness than for permission, since Congress also had a constitutional obligation to maintain the full faith and credit of the nation. Congress, however, viewed its principal role as controlling what was spent and when, and viewed these practices as an infringement on its prerogatives harkening back to the days when wasteful European princes would contract large amounts of debt to maintain their lifestyles and then passed the costs onto the people. At the same time, when not specifically controlled by a small government ideologue, any Executive will strive to take on more tasks and argue for bigger budgets, as is the nature of bureaucratic organizations.

But there is a new wrinkle in this already old dance – the debt ceiling, which is a looming presence in every budget battle because of the perpetual deficits of the US Government. Only a few countries legislate debt limits, with Denmark being the only developed one other than the US. Poland is the only country to have included its debt limit in its constitution. Since 1960, Congress has acted 78 separate times to permanently or temporarily raise the debt ceiling, as well as revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. Congress has raised the debt ceiling 15 times since 2001. The debt ceiling modification made by President Obama set the new limit at 19.8 trillion dollars, but the last debt ceiling battle took place in 2013, when the ceiling stood at 16.7 trillion dollars. Then, as now, the Affordable Care Act was the opening shot of the hostilities from a Republican Party which had won narrow majorities in both Houses after 2012, signaling voter displeasure with Obama. The agreement was signed on the eve of breaching the limit, on November 17, and after 16 days of government shutdown.

The mechanics of a shutdown

When not specifically controlled by a small government ideologue, any Executive will strive to take on more tasks and argue for bigger budgets, as is the nature of bureaucratic organizations.

Between the 1970s and today, there have been 19 shutdowns, generally lasting 2-3 days. The longest shutdown in history lasted 26 days and came about during the Clinton era, divided into two segments, 14-19 November 1995 and December 16, 1995 until January 6, 1996. Since it is always the opposition that stands most to gain from brinkmanship, if only to bring the wrath of the voters onto the President’s Party (which is usually the ruling Party), that instance was precipitated by the Republicans, led by then rising star Newt Gingrich, Speaker of the House and in possession of a large majority. The denunciations of the Democrats managed to stir the voters, and the Republican sabotage galvanized voters to give Clinton his second term.

The process of shutting down and restarting the government activity is traumatizing for the accustomed rhythm of society and, contrary to expectations, does not result in savings, but rather increases in costs.

The process of shutting down and restarting the government activity is traumatizing for the accustomed rhythm of society and, contrary to expectations, does not result in savings, but rather increases in costs. Hundreds of thousands of federal employees, out of millions, are sent home on the very first day, as part of the “graceful decline” of institution activity. There are specific regulations that ensure the continued maintenance of personnel vital to human safety or state interests. All national parks, monuments and public museums close, thereby impacting tourism directly and indirectly.

Exemptions from the Anti-Deficiency Act were allowed for people volunteering in a case of national emergency, or to protect lives and property. Even today, however, in case of a government shutdown, it is expressly forbidden for employees who are not on the key personnel list to volunteer to work anyway, since it might create an obligation for Congress. In practice, there has never been a case where the government employees who stayed at home have not received their wages even for the time not spent working, since Congress has had a prior fright with unpaid obligations after WW1, which makes their interdiction from working even more baffling.

Air traffic controllers, some emergency personnel and essential military personnel stationed outside the country are still on duty. In 2013, for instance, a special law was signed by Obama and a bipartisan group of lawmakers to allow military operations beyond the borders to proceed fully funded while the government shutdown was playing itself out. Only Mission Control stays open at NASA, to monitor existing missions, especially on the ISS. Presumably, the American astronauts are still on duty, though whether they are paid is uncertain. The problem is that the personnel triage required to keep a skeleton crew for vital functions leaves institutions without important support staff, thereby making it impossible for them to do the job properly. For instance, Social Security is the largest expenditure in the American budget, larger than the proverbial military-industrial complex. It is a program passed by law, like the salaries of lawmakers and their staff, so it cannot be affected by a government shutdown. Its bureaucracy, however, is targeted by a shutdown, so only a skeleton crew of clerical workers would remain, leading to delays and errors in the disbursement of funds for the largest single activity of the US Government. In order to avoid possible liability for infringing on the Anti-Deficiency Act, administrators are incentivized to keep the critical personnel list as short as possible, further increasing the risks of errors. Other institutions make their own arrangements. The justice system has its own cash reserves to keep it working for at least ten days with no non-essential personnel and with auxiliaries doing unpaid work. After the money runs out, everyone works for free and only criminal cases are tried.

The deficits of the US Government are such that, were he to balance the budget downward, with no new income streams, he would not only find it impossible to implement his agenda, but wide swathes of the American economy as currently constituted would be run into the ground.

Even Washington DC which, as part of the historical compromise that sees it as outside the state system, is funded directly by Congress and continues to operate, in principle, but with every public service removed. Whether the smell of accumulated garbage will prod Capitol Hill to end the stalemate quicker is unknown at this time. Meanwhile, the tendrils of federal funding for local governments run so deep, that it is very hard to anticipate the effects of a government shutdown on local government. The most serious issue will likely be the various measures related to the bailing out (stealth or overt) of troubled municipalities. Bailouts are, of course, set by Congress, but there are administrative measures in the toolbox of government, and a divided Congress is unlikely to be able to get together to vote on politically charged bailouts. Whether it is the city of Chicago, with its Democrat strongholds, or typically Republican cities with high welfare and public services expenditures for illegal immigrants or poor citizens, or Democratic cities with impoverished minority quarters that cannot be sustained from local taxes, such bailouts are unthinkable in the current political climate.

Some closures are also counterintuitive – in 2013, the National Institute for Health, the Center for Disease Control, the Securities and Exchange Commission and the Environmental Protection Agency closed their doors.

Consequences

The absence of the customary presidential honeymoon period and the obstructionism taken to new and dangerous heights have tarnished Trump’s shine among voters.

In fitting with his recent assessment that the Presidency is more difficult than he imagined, Donald Trump, who had sided with the Republican hardliners in 2013 in tweeting that “I cannot believe the Republicans are extending the debt ceiling – I am a Republican & I am embarrassed!” now faces the task of ramming a budget through and simultaneously raising the debt ceiling. The deficits of the US Government are such that, were he to balance the budget downward, with no new income streams, he would not only find it impossible to implement his agenda, but wide swathes of the American economy as currently constituted would be run into the ground, creating millions of angry people. In theory, the Treasury cannot prioritize payments, it must pay its obligations on a “first come, first served” basis. If there are not enough resources, then Social Security gets the first shot at what there is, provided that the rules are not broken to prioritize servicing the American debt in order to maintain “the full faith and credit”. Even with the Treasury lurching along, it only takes an error or a mismatch between resource entry and the due date of a debt obligation in order for the unthinkable to happen and the US to have technically defaulted, sending jittery markets tumbling all over the world. The reason why the US has been able to borrow so much for so long is that the dollar is a reserve currency and the T-bill is a centerpiece of global banking, since it has, historically, provided the zero risk portions in the portfolios of institutions that need to comply with capital reserve requirements dependent on risk. This is a systemic issue from which the US cannot easily extricate itself, even though purchases of new debt by foreign countries have fallen off recently. Therefore, Congress and Trump are playing with much more than the health of the US financial system. In 2011, during another debt ceiling enhancement battle which ended on August 2nd, the ratings agencies downgraded the US for the first time and stocks fell by 15% from the political brinkmanship on display.

Political chess

Democratic Representative Steny Hoyer links the passing of any sort of short-term spending bill to the Republicans holding off on passing their health plan and repealing Obamacare, for which they already have the votes. This is a form of brinkmanship, since it effectively threatens to start the government shutdown now rather than later. He said:

“If Republicans announce their intention to bring their harmful TrumpCare bill to the House Floor tomorrow or Saturday, I will oppose a one-week Continuing Resolution and will advise House Democrats to oppose it as well […] If Republicans pursue this partisan path of forcing Americans to pay more for less and destabilizing our county’s health care system — without even knowing how much their bill will cost — Republicans should be prepared to pass a one-week Continuing Resolution on their own”.

The deal reads like it was the Democrats controlling the White House and both chambers of Congress, not the other way around.

The battle over the budget saw Trump starting from a weak position. While his strategy is necessarily confidential, his opening move of conceding the Obamacare subsidies and not including the funding for the border wall may have made him look weak and encouraged the Democrats to hold out for an even better offer. While trashing the Republican offer in the press, they asked to include a bailout for Puerto Rico’s Medicare system, the troubled American territory with unsustainable levels of debt and a dependence on fiscal transfers. This brazen move was unacceptable for Republicans and also for Americans, whose own states and municipalities are suffering deeply from local debt crises. Puerto Rico, while not politically influential by itself, is a major Democratic client through its US diaspora, which does vote and is a factor in the political transition of states like Florida from Republican to Democrat. The Democratic Party would also find it extremely advantageous if it were to become a state, since its 3 million inhabitants and two Senators would change many political calculations. Trump’s pronouncement was this:

„I don’t think that’s fair to the people of Iowa, and I don’t think it’s fair to the people of Wisconsin and Ohio and North Carolina and Pennsylvania that we should be bailing out Puerto Rico for billions and billions of dollars. No I don’t think that’s fair.”

He followed it up by tweeting:

“The Democrats want to shut government if we don’t bail out Puerto Rico and give billions to their insurance companies for OCare failure. NO!”

The Americans have perfected an adversarial system where negotiations take place at the last possible moment, by the light of the burning emergency.

Democratic intransigence might come down to two factors – they have encouraged so much demonization of Trump among the activist elements of their base that they cannot back down and overtly compromise with him without losing face to their more extreme elements; they really do want a government shutdown, seeing the pain and anxiety as a force to blunt Trump’s populist appeal. The absence of the customary presidential honeymoon period and the obstructionism taken to new (and dangerous) heights have tarnished Trump’s shine among voters, but a bad mark on performance does not translate into voting for the establishment people. We are just a year away from the mid-term campaigns, when the Democrats would like to reverse the situation in Congress, and the special elections so far (Kansas, Georgia) show a stronger showing for the Democrats, with future elections likely to confirm this trend (Montana in May, California and South Carolina in June).

Statista.com also shows that there is a surprising tolerance among Americans for the shutdown, depending on the subject that precipitates it. This mood against compromise is a sign of the political decay in the US, but it can be useful to politicians like Trump as a margin for maneuver.

Goldman Sachs thinks that the Republican healthcare reform effort is doomed from the start, unless they make a more limited bill that only modifies certain aspects of the existing law. Neither did Trump appear very enthusiastic about supporting what was his rival’s pet project and, as it stands, was deeply unpopular with his own base. On tax reform, Goldman Sachs anticipated that it will pass eventually, but in a watered down form that nevertheless checks Trump’s main points. Results could be seen in 2018 most likely, given the schedule in Congress. There are elements of uncertainty, since there is the Byrd Rule that states that unfunded tax cuts (meaning that taxes were not raised elsewhere to cover the shortfall) must not have an effect on deficits beyond the term of the budget resolution being negotiated (typically ten years) for the package to be approved. However, corporate taxes are 10% of the government’s income and it is likely that anything but a purely symbolic application of the cuts will have major effects on deficits and debt, especially given the unsustainable increase under Obama (a trillion dollars in debt per year and 2.4 trillion dollars in this fiscal year, if the trend from late 2016 holds).

Beyond the high risk of government shutdown, Deutsche Bank also anticipates high policy uncertainty as a result of negotiations – it is expected that the border adjustment tax that Trump promoted will not find its way into the spending bill, and neither will defunding sanctuary cities. Neither tax reform, nor healthcare reform is likely in the short term.

The interim deal

Unreformed, the system trudges along, bound not just by the increasing hard headedness of America’s divided elites, but also the global financial system to which the US has become inextricably linked under the guise of dominating it.

At the price of what appears to be an almost complete sacrifice of Republican interests, Trump and his team in Congress managed to pass a continuing resolution to cover the rest of the fiscal year, setting up the playing field for a significant debt ceiling and budget battle later this year. However, what Vice President Pence called “a bipartisan win for the American people” seems like anything but a win for the Republicans and Trump’s supporters, while Democrats were more specific about how pleasing they found the deal, while also warning that even such a favorable compromise could be voided if the Republicans go through with another attempted repeal. Senate Minority Leader Chuck Schumer said:

“This agreement is a good agreement for the American people, and takes the threat of a government shutdown off the table. The bill ensures taxpayer dollars aren’t used to fund an ineffective border wall, excludes poison pill riders, and increases investments in programs that the middle-class relies on, like medical research, education, and infrastructure.”

Democratic Minority Leader in the House of Representatives Nancy Pelosi, who was instrumental in passing Obamacare, also said:

“The bill also increases funding for wildfire and federal highway emergency relief, and for Puerto Rico’s underfunded Medicaid program.”

This was not the actual bailout, but a stopgap measure for the health system worth 300 million dollars. She also mentioned that 160 partisan issues were excised from the deal, most of which belonged to the Republicans. The grumbling in Trump’s party was audible and Bloomberg summed up their feelings by stating that:

Overall, the compromise resembles more of an Obama administration-era budget than a Trump one. The National Institutes of Health, for example, would see a $2 billion boost, reflecting the popularity of medical research among lawmakers. The deal includes $990 million for famine aid, along with a $1.1 billion boost for disaster recovery funds.

The highlights for the spending bill include:

  • 1 trillion dollars in spending, further adding to the monstruous deficits which had been foreseen as inevitable for both parties;
  • 5 billion in defense spending, 18 less than Trump wanted to settle for, and only a quarter of what he promised to the Army and his supporters;
  • No wall with Mexico, just 1.5 billion dollars for border defense spending tied to existing infrastructure, which is a major win for Democrats. It seems that the hyperbole of Mexico paying for the wall is fast becoming the only available, but remote, option;
  • Puerto Rico gets a temporary relief. This is a small, but highly symbolic win for the Democrats, since Puerto Rico may now look forward to greater support in the future;
  • Cuts avoided and budgets even increased for Environmental Protection Agency and National Institute for Health, as well as the symbolic percentage of Planned Parenthood paid for by the state;
  • The greatest “white elephant” in the United States, the California High Speed Rail project, gets another infusion of cash, despite billion already spent with nothing yet built. This seems counter-intuitive even for the Democrats, but may be seen as a form of “ritual humiliation” of Trump, given his support for new infrastructure and war of words with Governor Jerry Brown of California;
  • 100 million dollars for combating Russian influence in Europe.

Ultimately, the deal reads like it was the Democrats controlling the White House and both chambers of Congress, not the other way around. Among the possible explanations, which may all be right simultaneously in different degrees, we have:

  • Greater unity among Democrats in an opposition state hardened by the shocking loss to Trump;
  • Divisiveness among the Republicans, along with a tendency to compromise that is absent among Democrats, who have the strength of their convictions and more party discipline;
  • Trump’s opportunistic centrism, which makes such deals palatable to him, though not to his Republican allies;
  • The lack of influence of Trump’s core supporters, who have lost the most from the budget on the critical issue of immigration;
  • A tactical withdrawal to avoid a shutdown which would hurt the ruling party the most in the upcoming elections. However, the Republicans might find that not delivering anything to voters also qualifies as a loss;
  • An attempt at bipartisan coalition building by Trump, luring democrats to support future initiatives, though recent history suggests that age of American politics is long gone;
  • Trump prioritizing foreign policy in the next period, which requires a quiet “home front”.

Conclusion

Interesting times are ahead, especially once the bag of tricks to keep the debt ceiling negotiation at bay has been emptied. The Americans have perfected an adversarial system where negotiations take place at the last possible moment, by the light of the burning emergency. The results are invariably irrelevant from a systemic view, pleasing neither of the Parties, nor the people. This does not stop the politicians from praising their platforms or bipartisanship. Unreformed, the system trudges along, bound not just by the increasing hard headedness of America’s divided elites, but also the global financial system to which the US has become inextricably linked under the guise of dominating it. Horror and Schadenfreude are found in equal measure among America’s peers, who often find the unique political culture’s conflicts to be baffling, while also worrying about the potential of contagion of any disruption. There has been a trend, over recent years, manifested also in the US, of trying to separate politics from essential policy decisions. While it is a profoundly anti-democratic thing to do for countries that cannot shut up about democracy, the tiring regularity of lose-lose battles over aspects of economic policy make such systems attractive. Even the Americans were considering outsourcing debt ceiling decisions to an independent body. However, it is uncertain whether such systems may work in light of the continuous breakdown of personal morals and institutional trust (the IMF presents a telling picture), or if they may even elicit the (possibly misplaced) trust from the population required to give such a mechanism a chance.

Ultimately, it is very likely that the US, still the greatest engine of prosperity in the world, will find itself in an accidental default because of political games.

Finally, two real issues emerge from this crisis in the making. The first is that the United States is on an unsustainable course whose denouement will manifest, sooner or later, to the extreme shock of an interdependent world. None of the political actors have any idea how to correct this course and neither are the People amenable to deliberate corrective changes. Government spending creates its own interest group that pursues the maintenance of that expenditure. No entitlement may ever be retracted or annulled. Once given, it must always be there, which leads one to consider that the most extreme fiscal conservatives have a point even in their destructive obstructionism. Even the Affordable Care Act, which serves a useful purpose but is very dysfunctional while not addressing the roots of high American health expenditures, is now a sacred cow. A recent letter from the UN addressed to the American leadership warned that its elimination or reduction is against human rights, which is ridiculous but indicative of the politicization and concomitant infantilization of the public policy discourse at the highest levels.

The second is the moral hazard of relying on brinkmanship and national destruction as a routine political strategy to win political points and influence lawmaking. If the blackmailed party does not give in, it is an irresponsible ruler. If it does, then it rewards bad behavior and sets itself up for future attempts. The worst part is that both parties have resorted to this measure and will do so again in the future, if only for the logic of payback. Ultimately, it is very likely that the US, still the greatest engine of prosperity in the world, will find itself in an accidental default because of political games. Yet the mechanisms being abused are sound in concept and appropriate for exercising a responsible and deliberative form of democracy. The debt limit was meant to discipline government but still provide for spending in extraordinary situations like existential threats, not slow its rate of debt accumulation for mundane matters for a few days each year. To retreat from these mechanisms, especially if they will have led to disaster, is to concede defeat on the subject of democracy.

In 2013, one of the signatories of the debt ceiling deal, Republican Mitch McConnell, who is now a key player in Congress, quoted to reporters an important piece of wisdom from his native state of Kentucky – “nobody needs a second kick in the head from the mule to learn his lesson”. Apparently, they do in politics, which is doubly ironic, since the mule is the symbol of the Democratic Party.

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