A taste for mutually assured destruction

Democrats feel assured they'll win whether or not their opponents cave in to tax breaks, while Republicans draw the opposite conclusion. It's hard to see what could move either party towards compromise.

FT.com

When Congress and the White House started the sequestration clock in August 2011, people called it the nuclear option, since it would never be allowed to happen. Anything would be better than the indiscriminate spending cuts it would trigger. "It was done to be sort of like, in Dr. Strangelove, the bomb that goes off,” said Ben Bernanke, chairman of the US Federal Reserve. On Friday it went off and the Dow closed 35 points higher. Some nuclear option. What would the stock markets do if Congress agreed?

Alas, the question is hypothetical. The logic of the sequestration was that Republicans would be hit by blind cuts to the Pentagon budget – something it was thought inconceivable they would tolerate. And Democrats would get yet more reductions in their civilian spending priorities. The point was to ensure it was worse than the alternatives. But both sides have concluded it is better. Whoever first proposed this cunning sequestration, partisan loathing has only got worse.

Given the depths of antipathy – not least between President Barack Obama and John Boehner, the Republican House Speaker – perhaps only a real nuclear option would work. Failure to legislate would trigger a simultaneous nuclear launch on San Francisco, cultural capital of the Democrats, and Salt Lake City, a Republican bastion. Should that fail, it would be followed by multiple strikes on red and blue states alike until the public became so angry Washington had to act.

In the event, the $85 billion sequestration looks likely only to entrench the partisanship it was supposed to circumvent. Obama’s ultimate goal is to win back control of the House of Representatives in the 2014 midterm elections, which would give him two years to make a dash for history. With Congress back in full Democratic control he could tackle global warming, enact genuine gun control and achieve other currently unreachable goals. In American football terms, Obama is playing for the fourth quarter.

The sequestration offers him a no-lose political proposition. In recent days Republicans toyed with giving the president discretion over how the cuts were administered – a scalpel rather than a meat cleaver. He dismissed such talk. Democrats believe the sequestration sets them up for a rolling public relations coup.

Either the Republicans will cave in and agree to get rid of special tax breaks for the wealthiest Americans, which would cement Obama’s headline tax victory in early January, or they will stick to their guns and prove once and for all that they hate government more than they love their country. The latter looks more likely.

Every delayed flight, every vaccination a child fails to get and every closed public park will reveal Republican callousness. As the cuts deepen – from April onwards, since the law requires 30 days notice to federal employees – the public will further appreciate how much they rely on government. Aircraft may not fall out of the sky but long security queues will raise everyone’s mercury.

The Republicans have drawn the opposite conclusions. Their goal is to ensure Obama’s agenda is stalled for the next four years, which would be greatly assisted if they could regain control of the Senate in 2014. Sequestration will help push their case. Every time Obama points to furloughed meat-factory inspectors or growing gaps in US-Mexico border security, Republicans will accuse him of manipulating the cuts for effect.

History says the president’s party loses midterm elections even when the economy is strong – Republicans retained control of Congress in 1998 during the height of Bill Clinton’s internet boom.

Today’s economy is a pallid imitation of the 1990s. Sequestration will shave roughly half a percentage point off growth in 2013, thus ensuring unemployment will probably still be hovering at about 8 per cent at the start of 2014.

But in practice, Republicans are betting most Americans will wonder what the fuss is about. The sequestration amounts to just 2.4 per cent of the federal budget. If Washington cannot handle a cut this small, it is surely beyond repair. "Despite a relentlessly hysterical campaign from President Obama claiming the sequester would end American civilisation as we know it, the sun still rose this morning,” said Tim Phillips, head of a leading Tea Party group, in an email to supporters on Saturday.

It is hard to see what in the next few weeks will persuade the parties that compromise is a better option. Until a few days ago, most observers believed the sequestration would be allowed to continue only until March 27, when Congress must approve resolutions to prevent a total shutdown of government. It is now clear the timing is back to front. The effects of the sequestration will not be widely felt by the public until at least April or May. That means Congress will only come under pressure to address the countdown to the next big trigger in July or August, when the US is set to hit its sovereign debt ceiling (a more realistic nuclear metaphor).

Such is Washington’s fissile outlook. Even budget experts are uncertain how the sequestration will take effect – the law is riddled with complexity. That makes it hard to anticipate the exact political twists and turns. But the grand political narrative is heading in an all-too predictable direction. Washington’s deep-seated tolerance for dysfunction now extends to mutually assured destruction. And all that Wall Street can do is shrug.

Copyright The Financial Times Limited 2013.

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