Monday, August 1, 2011

Getting Out of Bankruptcy

It has already been widely commented that there were no winners in the debt ceiling standoff — certainly not any political party, or either house of Congress, or the White House, or the American people, or the political process. You might think Wall Street would be the winner, but the extra money they have made from manipulating the markets will vanish several times over in the coming economic downturn — a slowdown that could mostly have been avoided if House Republicans had not latched onto the debt ceiling as the one weapon they had to hold the country hostage.

The important thing about the debt ceiling package currently being considered in Congress is that the United States will be able to emerge from bankruptcy. Yes, the budget cuts included in the package will cause an economic contraction. Actually, from today’s manufacturing survey the uncertainty surrounding the debt ceiling standoff may have done so as early as the end of June. But an economic contraction can be remedied in a period of a few years, and can be used in some small ways to help move the country forward. The consequences of the U.S. government going into insolvency in the next day or two would have been much worse, and could have taken a generation to overcome.

One of the things we have learned from the last week of political theater is that the current House of Representatives can’t write a budget plan to save its life. That’s a problem, of course, because the Constitution requires the House to write the budget. It is hard to imagine how the new budget, due in just eight weeks, will come together, with most of the time available to prepare it already wasted on the debt ceiling fiasco, but for next year, it would make sense for the White House and Senate leaders to get together and design the budget that the House might write if it were able to write. By not forcing the House to work through a complicated series of amendments, that approach would increase the chances of actually getting a budget passed.