This article is a guest contribution by Howard Marks, Oaktree Capital.
I'd Rather Be Wrong
Today’s positions seem unusually unyielding. The Republicans’ conservative base demands adherence to the no-tax pledge, while liberal Democrats demand that their representatives prevent cuts in spending for domestic programs. These hardened (and polar) positions greatly narrow the possible grounds for problem-solving.
Just a few weeks ago, I published “Tell Me I’m Wrong,” my latest list of things in the investment environment that I find worth worrying about. I’m going to devote a few pages here – I promise this’ll be the shortest memo in years – to a point I touched on in “What Worries Me” (August 28, 2008) but omitted from the more recent piece.
This memo will be about one of the inarguably most depressing topics of our time: the seeming inability of governments and politicians to solve – or even tackle – the financial problems we face. Here’s the situation in Washington:
- Many of our most sweeping financial problems, such as deficits, national debt, healthcare costs, Social Security and Medicare, are long-term problems.
- It’s important that we tackle them early, since limiting their further growth can reduce the eventual cost and difficulty of fixing them.
- But the process of solving them will be unpleasant in the short term, entailing bad-tasting medicine, while the benefits will only be seen in the long term, when today’s politicians will have left the stage.
- Finally, most politicians’ main concern seems to be getting themselves and other members of their party elected. Voting for short-term pain in order to solve long-term problems is generally viewed as the wrong way to go about that.
This memo is inspired by two excellent newspaper articles that appeared within the last month: “Party Gridlock Feeds New Fear of a Debt Crisis,” by Jackie Calmes (The New York Times, February 17)[*] and “Perils of the California Model” by David Wessel (The Wall Street Journal, March 4).[†] Indicating their importance, The Times piece ran in the upper right-hand corner of the front page, always the place for the top story of the day, and the Journal story was carried on page A2. I’ve included links below in the hope they’ll increase your likelihood of reading them. As Calmes wrote in The Times (in both cases below, emphasis added):
After decades of warnings that budget profligacy, escalating health care costs and an aging population would lead to a day of fiscal reckoning, economists and the nation’s foreign creditors say that moment is approaching faster than expected, hastened by a deep recession that cost trillions of dollars in foregone tax revenues and higher spending for safety-net programs.
Yet rarely has the political system seemed more polarized and less able to solve big problems that involve trust, tough choices and little or no short- term gain. The main urgency for both parties seems to be about pinning blame on the other, before November’s elections, for budget deficits now averaging $1 trillion a year, the largest since World War II relative to the size of the economy.
Two weeks later, Wessel put it this way in The Journal:
The stalemate over health-care legislation, despite widespread acknowledgment that the status quo is unsustainable, underscores the inability of the political system to cope with complex, long-term fiscal issues. . . .
Today, the deficits projected are bigger than ever, baby boomers are beginning to retire, health-care costs keep rising and, surely, we’re closer to the day when Asian governments grow reluctant to lend ever-greater sums to the U.S. Treasury at low interest rates.
The Congressional Budget Office projects current policies would take the deficit from today’s 10% of gross domestic product to over 20% by 2020 and over 40% by 2080. Yet today’s politics appear more toxic, and the ranks of congressional leaders with the skill and desire to fashion compromises instead of talking points are depleted.
Here we have remarkably similar themes voiced in what some would call “a Democrat newspaper” and in a stalwart of the pro-business Republican establishment. Both articles complain that the current trends in politics reduce the likelihood that major problems will be tackled and solved . . . a rare example of agreement across the aisle.
That brings me to the subject of one of today’s greatest stumbling blocks, the absence of that elusive ideal: bipartisanship. Let’s discuss this issue in principle. It’s likely that the “ins” always think the fact that voters gave them control means they should mostly get their way, and that “bipartisanship” consists of the “outs” going along with them. The outs, on the other hand, don’t take the election results to mean the minority has no rights, and they feel perfectly within their rights to use Congress’s rules and processes to fight for their point of view (which, on us-versus-them issues, equates to thwarting the efforts of the ins).
The Times article points out ironically that when control of government is divided between the two parties, they both feel some responsibility for solving problems, while today, with full control seemingly in the hands of the Democrats, the Republicans are free to view their only role as dissenting and obstructing. And as the party in control, the Democrats evidently feel no obligation to yield on their positions.
Frankly, I wouldn’t be so unhappy if I were sure today’s battles were being fought over principles. What worries me most is the appearance that, instead, they’re being fought for personal and political advantage and to win elections.
Today I think few legislators from either party will vote for anything that would let members of the other party claim to have accomplished something. That may be an exaggeration, but I think it’s more true than false. And I think that’s behind the recent decisions by a number of senior legislators not to run for re-election. I’ve had the privilege of getting to know Byron Dorgan, the senator from North Dakota, and I have no trouble believing that was behind his decision. We’ve spoken about his frustration with the contentious environment in Washington. More recently, Evan Bayh of Indiana also said he wouldn’t seek another term in the Senate because it’s impossible to get anything done in dysfunctional Washington. Here’s how he put it in a February 21 Op-Ed piece in The Times:
There are many causes for the dysfunction: strident partisanship, unyielding ideology, a corrosive system of campaign financing, gerrymandering of House districts, endless filibusters, holds on executive appointees in the Senate, dwindling social interaction between senators of opposing parties and a caucus system that promotes party unity at the expense of bipartisan consensus.
Today’s positions seem unusually unyielding. The Republicans’ conservative base demands adherence to the no-tax pledge, while liberal Democrats demand that their representatives prevent cuts in spending for domestic programs. These hardened (and polar) positions greatly narrow the possible grounds for problem-solving.
Read the whole article here.
