Daily Archives: May 15, 2012

Some political analysts are starting to think about the possibility of a Romney presidency and how he would govern, given that he is unlikely to have complete control of the Senate. Although it is possible that Republicans may get a majority – Democrats now control the Senate by a 53 to 47 margin, including two independents who vote to organise the Senate with the Democrats – there is no possibility of them getting the 60-seat margin necessary to actually have control.

Although the Senate notionally operates by majority rule, in recent years Republicans have perfected the use of parliamentary procedures that effectively require 60 votes – the threshold necessary to break a filibuster – for virtually every bill or nomination. (Under the Constitution, the Senate alone confirms nominations for senior political appointments and federal judges.)

Obviously, should Republicans regain control of the Senate with fewer than 60 seats, Democrats would then use those same procedures to frustrate the Republicans. Thus a President Romney would face exactly the same problems in advancing his agenda that Barack Obama has faced.

There are two ways Mr Romney could respond. First is through an obscure congressional procedure known as “reconciliation”. It applies only to measures affecting taxes and spending, but has the virtue of requiring a majority vote for passage in the Senate. By law, reconciliation measures cannot be filibustered.

The big problem with reconciliation is that both the House and Senate must agree to a budget resolution embodying reconciliation instructions – basically, congressional committees are ordered to report legislation incorporating those instructions. Although Congress is, theoretically, required to enact a budget resolution annually, with or without reconciliation, it has not done so since 2010.

Some American liberals have long urged Mr Obama to “embrace the most expansive reading of reconciliation”, as  Noam Scheiber, senior editor of The New Republic magazine, recently put it. In other words, push the limit of what might fall within the definition of reconciliation to break the Senate filibuster.

This idea is impractical at the present time given the necessity of House and Senate agreement on a budget resolution containing reconciliation instructions, which is very unlikely with Republicans controlling the House of Representatives. Moreover, expanding the definition of reconciliation now might open the door for Mr Romney to use it later for his purposes.

The other option for dealing with the problem of routine filibusters is something Republicans put forward during the George W. Bush administration, when Democratic filibusters frustrated his agenda. That is what is called the “constitutional option”, which involves changing Senate rules by majority vote to end the filibuster altogether. Although Republicans eventually dropped the idea, it could be revived if they regain control of the Senate and Democrats use Republican tactics to block Mr Romney’s agenda.

 

Concern over the US’s long term fiscal situation is pervasive among policymakers and businessmen. Increasingly, commentators worry that without a sweeping “grand bargain” on deficit reduction market players will pounce, driving US borrowing costs to unsustainable levels and demonstrating diminished US leadership in the post-financial crisis world. But the doom and gloom merchants are wrong, or at least misplaced.

Since 2008, the US has by choice and necessity reduced its international role, with the killing of Osama bin Laden a year ago punctuating the end of the 9/11 era. For the first time since the second world war we live in a world without active US leadership, and no one else is willing or able to fill the void. Slow growth and aging populations drag on Europe and Japan. Despite the rise of the rest, emerging states such as China and India resist assuming global roles, and face significant challenges of their own besides. The international order has changed profoundly, and the frequency and effectiveness of multilateral collaboration is declining. I call this world without leadership the G-zero.

But the US is not a loser in this world—far from it. The US remains by far the most capable global actor, and the single most powerful and influential country on the planet. And as both cause and consequence of US resilience, the US remains the unchallenged and unchallengeable financial safe haven.

As a result, the US will almost certainly not face market pressure this year, or for several years to come. But there’s a catch: the very absence of market pressure makes it much harder for US policymakers to reach difficult compromises. This safe-haven curse imperils US efforts to foster robust economic growth and fiscal sustainability.

The safe-haven curse came to the fore last year. In 2011 the political and business communities became convinced that the US needed to get its fiscal house in order or face a financing crisis. Lawmakers in both main US political parties argued that only bold deficit reduction was essential. Republicans pressured the White House to tie a debt-ceiling hike to a deficit deal, and President Obama supported linking the issues. Fear of crisis intensified in the summer, compelling the president and House speaker John Boehner to entertain a controversial deal that would have angered both parties. Ultimately, the talks unraveled and both sides girded for the dire consequences.

But a funny thing happened: there weren’t any. Investors continued outbidding each other to loan money to the US government at historically low yields. Standard & Poor’s downgraded the US—and market players shrugged. When investors looked around the world, they saw Europe mired in a worsening debt crisis, a Middle East unsettled by the Arab Spring, Japan dealing with the aftermath of Fukushima, and China facing an economic slowdown. A little disagreement in Washington seemed positively quaint by comparison, and Treasury bonds as safe as ever.

Today, little has changed, and Washington’s fiscal free pass will not reverse any time soon. The dollar remains the world’s unchallenged reserve currency. US capital markets are still the world’s largest and most liquid. Truly riskless assets don’t exist, but Treasury bills are as close as anyone is going to get.

But cheap financing has a downside: Washington faces no pressure to make tough decisions. Without market urgency or fear of a crisis, lawmakers have little incentive to do anything beyond the absolutely necessary or politically popular. Large-scale deficit reduction and investment in growth—which the US does need, even if not nearly as soon as doomsayers warn—will not be required, and so not politically palatable.

Anyone who believes that US decline is inevitable ignores history. The US’s political and economic systems are resilient, effective, and enjoy wide support. But acknowledging US resilience should not distract from long-term challenges. The US must invest in education and infrastructure, reform entitlements and taxes, and maintain unmatched military and strategic power to protect its interests and those of its allies, especially in rising Asia. All of this will require painful political compromises from Democrats and Republicans. None of it will be cheap, and none of it will be easy. By fueling complacency, the safe-haven curse will make it all the harder.

The US can and should enjoy the benefits of its safe-haven status. In a world without leadership, the US remains capable, resilient, and attractive to others. But for its sake and for the world’s, the US must ensure that short-term victory doesn’t sow the seeds of long-term defeat.

This article was co-authored by David Gordon, head of research at Eurasia Group and former Director of Policy Planning at the US Department of State.

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