Did the Fiscal Cliff Hurt the Economy?

February 1, 2013Danny Vinik 1 Comment

Today’s jobs report was decidedly mediocre and unremarkable – the economy added 157,000 jobs in January. The Bureau of Labor Statistics also revised its November and December estimates up a decent bit as well. This seems to rebuke the idea that uncertainty surrounding the Fiscal Cliff held back the economy. After all, we continued to gain jobs at a similar pace as we had during the previous 10 months. The Fiscal Cliff didn’t seem to have a significant effect, right? That’s Matt Yglesias’s take:

With today’s jobs report out, it’s worth remembering that back during the lame duck session, the Fix the Debt crowd was constantly braying about the dire consequences of failing to reach a major budget deal. They said that not only would full implementation of the cliff be a Keynesian drag on the economy but also that fire and brimstone would rain down upon us if markets weren’t assured that Congress has a credible plan to tackle long-term fiscal challenges.

Well, Congress had no plan. They agreed to small tax hikes and a bit of new stimulus via unemployment insurance, randomly kicked the can on the sequester, did nothing to reform the tax code and nothing to settle entitlements. And everything’s … fine.

Not great, mind you. But a January jobs report showing normal growth, no bond market freakout, no interest rate spikes, and some nice upward revisions to data from the lame duck period. Uncertainty didn’t matter. Confidence didn’t matter. Strong fundamentals and decent monetary policy from the Federal Reserve have us on a track for O.K.-but-not-spectacular growth, and you should expect that to continue.

Everything is fine, but that doesn’t mean that the economy wouldn’t be better right now if Democrats and Republicans had come together and agreed on a big deal. Certainly, all the pundits screaming that the world would fall apart if we didn’t get a grand bargain were wrong. We are doing fine without a grand bargain. But that doesn’t mean the Fiscal Cliff didn’t harm the economy. Maybe we would’ve added 300,000 jobs in December and January if we reached a more comprehensive deal.

So, I disagree with Yglesias’s post that uncertainty and confidence didn’t matter. I think they did, even if just slightly, but it’s impossible to know how much they mattered without knowing what the economy would be like in an alternate universe where we had a major deal. Until then, it remains a mystery.

No, the Talking Filibuster is Not a Solution

January 22, 2013Danny Vinik Leave a comment

The New York Times editorial page came out in favor of the talking filibuster today (not the first time), but I don’t see how forcing Senators to stand on the floor and talk continuously would help at all. Here’s the Times:

Several younger senators, led by Jeff Merkley of Oregon and Tom Udall of New Mexico, say that if pressed, a majority of the Senate would support their plan for the talking filibuster. But older senators aren’t so sure, and have reportedly persuaded Harry Reid, the majority leader, to back off the idea. With the experience of having been in the minority themselves, these Democrats are fearful of losing a powerful tool should Republicans ever return to power in the chamber.

That would squander a moment for change. Supermajorities were never intended to be a routine legislative barrier; they should be reserved for the most momentous bills, and the best way to make that happen is to require that objectors work hard for their filibuster, assembling a like-minded coalition and being forthright about their concerns rather than hiding in the shadows or holding up a bill with an e-mailed note.

Certainly, we need filibuster reform. But the talking filibuster isn’t the solution. It would just create more dysfunction. Republicans are not going to stop filibustering bills if they are forced to take the floor and talk continuously. They will just go and talk. The Senate would have the same number of filibusters as it has now, except it would waste even more time. Who does this help? It gives Republican Senators less time to study up on the issues and talk to their constituents (they aren’t going to cut back on fundraising). Democrats don’t receive anything in return – the same number of bills are still filibustered.

Luckily, the talking filibuster does not currently seem like it’ll be part of the final bill:

Reid and Senate Republican Leader Mitch McConnell (Ky.) are close to reaching a deal to speed the pace of work in the Senate, but some of the details remain unresolved.

The agreement between Reid and McConnell is not expected to include the talking filibuster, which would require senators who want to block action on legislation to actually hold the floor and debate for hours on end.

We’ll have to wait and see what comes out in the next few days to judge the final legislation, but I’m happy to see that the talking filibuster is currently not part of the deal.

Why I’m Skeptical About #MintTheCoin

January 10, 2013Danny Vinik Leave a comment

The big conversation topic over the past week has been about whether or not President Obama should instruct the Treasury to mint a trillion dollar platinum coin, deposit it in the Treasury’s bank account at the Fed and thus avoid a nasty debt ceiling fight with Republicans. Steve Randy Waldman has more technical details on it. It’s an incredibly interesting idea and at first, I was on board, but over the past few days, my mind has changed.

I still believe its legal and would not have any economic impact outside of avoiding a default. It wouldn’t cause massive inflation. And of course the coin doesn’t need to be actually made out of a trillion dollars worth of platinum.

But, I’m skeptical about it for two reasons:

1. Right now, we have two parties in this country: one crazy (Republicans) and one sane (Democrats). Think about what would happen if we actually minted the coin:

Republicans would probably file a lawsuit against the President, claiming its illegal. And then they would spend the next four years making the President’s life as hard as possible. Forget about new gun regulation. Forget about immigration reform. Congress is inept right now, but it can get a lot worse. Mitch McConnell can bring the Senate to a stop. John Boehner can spend the next two years only passing bills to repeal Obamacare. It wouldn’t surprise me at all if House Republicans tried to impeach the President for such a move. The government would grind to a halt. And, we also need to pass a new Continuing Resolution for the federal budget in March so that our government is actually funded. How do you think that would go if Obama mints the coin?

2. It also sends out an image to the rest of the world that America’s government is fundamentally broken. I know – our image is already in the garbage since we’re debating whether we should pay our own debts. Bear with me for a second.

Congress may be incompetent, but the President actually did accomplish a lot in his first term: the ACA, Dodd-Frank Act, ending the war in Iraq, etc. House Republicans can spend all the time they want opposing everything Obama proposes but it doesn’t mean nothing happens. Bills still do pass (even if it’s at the slowest rate ever) and laws are signed. Believe it or not, Congress can actually do a lot less. Other countries, international companies and foreign investors know this. They may also hit the panic button if we mint the coin. Who wants to invest in a country where they need to mint a trillion dollar coin to not default? Who would have any faith that that country could accomplish anything? I’m not sure if the international world would finally lose faith in America, but it’s a risk that I’m unwilling to take.

However, there is a big caveat here. If the option is between going over the debt ceiling and defaulting or minting the coin, I’m on #MintTheCoin’s side. Defaulting is still worse than McConnell and Boehner shutting Congress down. It’s still worse than the international world losing all faith in America’s political institutions.

But right now, there’s a third option: negotiations.

I know the President has said he won’t negotiate over the debt ceiling, but he doesn’t have a choice here. The negotiations aren’t going to be fun. Republicans have the leverage and are going to use it. Some are crazy enough that they actually want us to default. However, Republican leadership understands how horrible that would be. They know they can’t let it happen. They also know that their image is a disaster and the public will largely blame them if we default. They have a number of incentives to negotiate and work towards a deal.

It’s a terrible, horrible standard to set, but we don’t have a choice. Get ready for an ugly couple of months.