Can politicians comfort the markets while hammering each other?
I've been reporting out a column on deficits this week, and what really comes through when you talk to the people worried about this stuff is that the question is not "what can we do to reduce the long-term deficit?" but "what can we do that will convince the market that we plan to reduce the long-term deficit?"
These questions are crucially different. For instance: The long-term deficit is largely caused by health-care spending. Two policies that might bring down health-care spending are a tax on high-value plans and a commission empowered to aggressively reform Medicare to cut costs.
As it happens, Democrats passed both policies into law in the Affordable Care Act. For political reasons, however, both of them are delayed until 2018. Republicans could have reassured markets by saying that the bill itself is a travesty but these cost controls are important and they will do everything in their power to make sure that they take effect, and they'll in fact work to make them stronger. Instead, Republicans said that neither policy would ever make it into the real world, as they were going to repeal them both and, if they didn't, Democrats would change their minds on both policies before implementation. Hard for markets to feel too good about that.
Electoral incentives push the two parties to discredit , demonize, and promise to undo whatever accomplishments the other comes up with. That's as you'd expect it to be, but it's going to make it much harder for the political system to reassure the markets that policies they pass now will work as promised. We've already missed one opportunity to trumpet our deficit accomplishments before the market this year, and we'll no doubt miss more as time goes on.
June 23, 2010; 2:11 PM ET
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