“doomsday” & “catastrophe” economics: crafting policy for “cliff-hangers”

LARRY D. SANDERS

JANUARY 2013

“DOOMSDAY” & “CATASTROPHE” ECONOMICS:

CRAFTING POLICY FOR “CLIFF-HANGERS”

TROUBLING TREND• Periodic threats of economic crisis from government

shutdown increasing in frequency

• Artificial crises that may have real impacts• Debt ceiling• Budget deficit• Budget passage• Sequestration

• Impacts may include• Reduced credit rating for Federal borrowing• Private business uncertainty• Government uncertainty/preventative cuts in spending/programs• Economic slowdown—domestic & global

SHIFTING PARADIGMS OF GOVERNANCE: HOW DOES THIS AFFECT POLICY & POLICY EDUCATION?

• Old paradigm:• Congress & Admin assume compromise essential in a

democracy.• Congress Majority & Admin share primary role to govern.

• The minority accepts role of “loyal opposition.”

• New paradigm:• Congress fractured among • Some who consider compromise as desirable & some who do

not.• Some who see that primary role is to govern, and some who

see primary role is to reduce/eliminate government.• The minority may play for destruction, not loyal opposition.

• Forces policy to be conducted by crisis mgmt; recurring threats of “doomsday” & “catastrophe.”

NEW PARADIGM OF “NO COMPROMISE”, “CRISIS MANAGEMENT”

• Old paradigm assumes• Continuous policy options available, with

compromise allowing politicians/decision makers to arrive at policy option grudgingly acceptable to majority & minority

• Negotiation process based on mix of reason & power politics

• New paradigm suggests• Policy options are discrete “either/or” choices• Compromising party may have to do so w/o

reciprocation• Crisis may push choice in the direction of minority

with no compromise.

GOVERNMENT ABILITY TO DEFINE & RESPOND TO DIFFICULT SITUATIONS

• “Functional”• Relatively timely assessment & response that maintains

health/wellbeing of populace & functions of institutions• Requires strong majority support that can effectively

plan & implement response with consensus• Requires loyal opposition for long-term democratic

health/ well-being to engage in negotiation & compromise

• Assumes that government can be instrument of “good”

• “Dysfunctional”• Breakdown in common ground evaluation/response• No consensus in definition of “healthy” solution

(economy/populace); Weak majority or split govt w/”govt is good” battling “govt is bad.”

FINANCIAL CLIFF-HANGERS:POLICY CHOICE AS GAME THEORY

(ASSUMES PROGRESSIVES HOLD SLIM MAJORITY)

Minority compromises as “loyal opposition”

Minority refuses to compromise; no loyalty to govt.

Majority compromises

Resolution with both giving some; could result in long term resolution with maximum gov’t flexibility

No long term resolution; short term limited success; minority pays a political price, but may see limits on govt.

Majority refuses to compromise

No long term resolution; short term limited success; majority pays a political price, but may preserve govt programs

No resolution; crisis dictates loss of govt. flexibility to manage events

CHALLENGE FOR PUBLIC ISSUE EDUCATION

• Resurrect a credible national forum for providing public issues education.

• Redouble efforts to provide science-based objective information.

• Frame the issue(s) objectively and based on the reality of situation.

• Continue to present relevant options that provide flexibility even when the political posturing is promoting illusion of “no choice.”

• Do not accept patently false opinions; Recognition by educator that just laying out options casts educator as apologist/spokesperson for pro-govt side.

CURRENT MACRO-ECONOMIC POLICY SITUATION

• 2012 “fiscal cliff” successfully avoided• Compromise found half of $1.2 trillion in deficit

reduction• Pushed sequester of $600 mil. forward 2 months

• New 2013 “dual cliff”• Debt ceiling —artificial Congressional

requirement to increase debt ceiling to allow gov’t to pay bills

• Sequestration to find remaining $600 mil• Half defense spending; half other program

spending; Some programs are exempt (SS, Medicare, Medicaid, SNAP, etc.)

FUNDING ISSUES BECOME MOOT ONCE OBLIGATIONS INCURRED

• Mandatory vs. appropriated vs. authorized may matter while legislation is being crafted.

• Once legislation passed & federal government incurs obligation, it must be paid.

• Debt ceiling is about increasing what Federal government can borrow to pay obligations, not about whether obligations should be made.

DEBT CEILING CLIFF: PRECIPITATION OF ARTIFICIAL CRISIS

MUST PAY?

PLANNING FOR FEDERAL CUTS…

• President Obama’s acting budget director… told agency heads … to step up their efforts to prepare for $85 billion in automatic spending cuts on March 1 by planning for furloughs, contract delays, hiring freezes, buyouts and other cost reductions. …

• Zients… cited the across-the-board cuts of 8 to 10 percent that would take effect at most domestic and civilian military agencies if Congress and the White House cannot reach a deficit-reduction deal…

• “If congressional Republicans refuse to pay America’s bills on time, Social Security checks and veterans’ benefits will be delayed,” Obama said. “We might not be able to pay our troops, or honor our contracts with small-business owners.  Food inspectors, air traffic controllers, specialists who track down loose nuclear material wouldn’t get their paychecks.”• Washington Post, Jan 15, 2013

LATE JANUARY UPDATE:CONGRESS ATTEMPTS TO “KICK

THE CAN DOWN THE ROAD” … AGAIN

• House GOP proposes to extend debt limit to Mid-May:• “The House plans to vote Wednesday (23 Jan) on a

measure that would leave the $16.4 trillion debt limit intact but declare that it “shall not apply” from the date the measure passes until mid-May” (18 May).—Washington Post, 22 Jan 2013.

• Congress must make progress on budget, or Congressional paychecks will be held up• Does not address sequester 1 March, &

subsequent govt. shutdown 27 Mar if sequester not done

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THE POLITICS OF FARM PROGRAM

PAYMENTS

Presidential Election Map 2012 (Blue: Dem; Red: Repub)

Farm Program PaymentsBy Congressional District (the darker, the more payments)

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2012 PRESIDENTIAL ELECTION CARTOGRAM: 332-206(EACH ELECTORAL VOTE REPRESENTS 1 SQUARE)

http://www-personal.umich.edu/~mejn/election/2012/

Cartogram: map re-scaled accordingto population, rather than accordingto geographic size.

Presidential Election cartogram popular vote by county, 2012

Presidential election results, by

% of votes within county, 2012

THANKS!

• Contact:• larry.sanders@okstate.edu

• Special thanks to:• Jim Novak (Auburn)• Jim Pease (Virg. Tech)