Between the spending bill, the Fed’s rate raise and the climate pact, important things are getting done.
FROM POLITICO | DECEMBER 17, 2015
The view of Washington as a dysfunctional system is deeply entrenched—and of course it’s the most popular meme on the GOP campaign trail. “Nothing works in our country,” Donald Trump said again at Tuesday night’s debate, repeating his favorite (and seemingly most effective) appeal to a base that’s disgusted with politics as usual. Yet the past week has been a blow to cynics everywhere, because lo and behold, Congress, the White House, and the Federal Reserve all acted on vital economic policy and did so with minimal drama.
In the space of a week, Congress wrapped up a massive tax-and-spending bill, with in excess of $600 billion in tax cuts and another $1 trillion plus in spending. The Federal Reserve ended its months-long Hamlet act and, in a mild version of preemptive monetary policy, at last decided to raise short-term interest rates for the first time since 2006, by 0.25 percent. And the White House helped to lead a heralded multi-national agreement struck in Paris designed to reduce and modify the intensity of climate change over the coming decades.
None of these actions is without critics, legions of them in fact. The Committee for a Responsible Federal Budget called the tax-and-spend bill “fiscally irresponsible” and warned that it marks a return to congressional tendencies to bluster about costs and debt but then spend in a drunken-sailorly way when it comes time to set budgets. Many others echoed similar complaints. And yes, the omnibus bill has its share of questionable tax breaks (favorable depreciation of race-horses to name just one); and yes, all things being equal (which they never actually are), the bill will reverse years of deficit reduction with potential deficit increases.
But what the bill will do is end a lot of uncertainty about the economy and what businesses can invest in. It will also at last remove the draconian and often indiscriminate cuts forced the by the 2011 sequester agreement. And in contrast to several years of massive dysfunction, debt ceiling hysteria and government shutdown, this spending bill looks like it has a good chance of making it into law, despite reservations from senators like Marco Rubio and the distress of the conservative caucus in the House.
The move by the Fed also has its questioners. The newly anointed “bond king” of Wall Street (not an official role, mind you), Jeffrey Gundlach, has been pointedly criticizing the Fed for acting too soon given financial system fragility and global economic weakness. Others have wondered whether the Fed moved on rates because it really was time to or whether the pressure to do something after years of doing nothing became too intense to resist.
And of course the climate accord rose shakily out of Paris weighed down by ballast from numerous doubters. These range from the die-hard climate change skeptics led by Senator James Inhofe (R-Okla.) who flatly stated that however strongly the White House endorsed the deal, it would be not be binding on the United States. Critics on the left contend that the deal is way too little far too late, and that it will succeed in making world leaders believe they have done something as the planet burns.
To these and a host of others, the panoply of passages the past week amount to little. And indeed, nothing that Washington has done exudes perfection. But only in the halo of history does anything ever do that. Few of the signature bills of the 20th century looked unblemished when passed, certainly not the reforms of the Great Society, or the Gingrich-Clinton welfare reform bill of 1996, nor the Medicare Part D drug act of 2006. The effect of past bills is rarely settled, and many of the most consequential still bitterly divide proponents and opponents.
The budget bill now pending hardly ranks as a pivotal piece of legislation, but what matters is that it got done and with less of the usual absurdities and pork . Last month’s highway bill was less admirable, but after years when the Tea Party held the normal workings of Congress hostage and government shutdowns threatened to become commonplace, the move away from dysfunctional brinks should be greeted with both relief and small celebration.
For those who have legitimately wondered where the adults in the room were to be found, the current crop of political leaders in Congress seem to have recognized that having been elected as public servants they are under an obligation to, well, serve the public. At least that’s what new Speaker Paul Ryan is telling us. Rather than letting the great be the enemy of the good, we should acknowledge that a functional, budgeted government is actually better than one that shuts down promiscuously, cuts indiscriminately, and rewards extremism.
As for the Fed, it has spent many months deliberating the arc of interest rates. Under Janet Yellen, it has internalized the dictum of being “data dependent” as never before. That has meant honest discussion about the conflicting data and changing economic patterns that has seen steady unspectacular growth in GDP but almost no growth in average incomes;, that has seen years of easy money but no discernible inflation; and that has witnessed statistically strong employment growth with a large gap between who is working and who is not.
Rather than simplify just to satisfy media and market participants who crave easy, black-and-white narratives, the Fed has engaged in an open and complicated set of discussions. Now, it has acted, and the statement explaining the rate rise and Yellen’s subsequent press conference communicated with clarity and assurance. “We see an economy that is on a path of sustainable improvement,” Yellen said unequivocally, and unlike a politician uttering the same phrase, this was a conclusion based on deep analysis. That doesn’t mean that the analysis is correct, but it is not born of wishful thinking or pandering.
The climate deal is many things–a global compact, a next step in an emerging consensus about carbon intensity and climate change, a more aggressive stance for the U.S. government. It is also an example of executive action moving unilaterally ahead. That was a similar dynamic to the negotiation of the Iran nuclear deal, and it reflects the way the Obama administration has changed the nature of the last two years of a lame duck presidency.
It used to be that the White House faded into irrelevance in those years; for Obama, it is becoming the more active period of his administration. That is intensely frustrating to those who oppose his policies, and it may create a template that subsequent generations come to rue. It’s all fine and well if the administration uses the creative power of the executive branch to do things you like; it’s another story when it does things you loathe, hence the ratcheting intensity of animus toward Obama. But the aggressive moves toward efficiency, energy independence, and leadership globally are a powerful and positive development for the global system and sustainable economic growth.
Perhaps celebrating these moves sets the bar too low. If just doing one’s job is lauded as a breakthrough, then that shouldn’t be hard to surmount. But Washington for the past years has failed to meet even that minimum standard, and the past week has finally seen a move toward a functional government. In the Trumpian world where up is down, that may not matter. For the rest of us, it is simply a good thing.