For the next few years elections will be won or lost on the issue of fiscal responsibility. Everybody was scared by the collapse of 2008, understands that trillion dollar deficits are unsustainable, realizes that Social Security/Medicare/Medicaid must be scaled back (the sooner the better), and that the fat years must be followed by some lean years. If President Obama remains AWOL and the Republicans don't let the Democrats divert attention to "birthers", gay marriage, or "union busting", the day is theirs. Short term noise may be disappointing, but the tide should turn by mid-year.
- Round One. In a demonstration of extreme juvenile mismanagement Speaker Pelosi made no effort at a budget for the 2011 fiscal year which began in October, instead passing a "Continuing Resolution" effective through March 4, to keep spending at 2010 levels (24% above 2008) Unlike Pelosi, Speaker Boehner has allowed bi-partisan debate and amendment in committee and on the House floor to arrive at $61 billion in cuts for the current year and has offered an extension in exchange for small pro-rata cuts. Reid, hoping for a shut down that he can blame on the Republicans, offers nothing. In round one he may have the stronger hand.
- Round Two. In April or May the federal debt limit of $14.3 trillion will be reached and presumably raised. Polls show that a large majority of the public opposes raising the debt limit - a sign of how deep the public's discomfort is rather than belief in a realistic option to be worked out in a month. (At a similar point in 2006 Senator Obama famously said "The fact that we are here to debate raising our debt limit is a sign of leadership failure. ... America has a debt problem and a failure of leadership.") Now the spector being trumpeted by Bernanke and Geithner is default on our debt with a disastrous impact on our future borrowing power. Expect a series of small raises designed to keep the pressure on, perhaps with some current spending concessions.
- Round Three. In April the House Republicans will unveil their 2012 budget proposal. While the first two opening shots offer the Republicans leverage and the likelihood of some progress, they do not reflect the comprehensive blueprint that the 2012 budget will. Unlike President Obama's proposal it will include entitlement reform. It may include broad tax code reform. It will presumably include an alternative to Obamacare. It will serve as a foil for the ideas of a bipartisan group of Senators (Democrats Conrad, Durbin, and Warner; Republicans Chambliss, Coburn, and Crapo) who wish to draw on the ideas of the Deficit Reduction Commission which Obama formed with much fanfare then ignored. With or without Senate Majority Leader Reid, Democratic votes will be available.
With President Obama projecting a $1.65 trillion deficit and no entitlement reform in his 2012 budget proposal, and with nothing from Reid, the issue of the day has been handed to the Republicans. "Just say no" may be an effective legislative tactic but it will not solve the nation's financial problems or get public support. To this point the Tea Party has shown it to be serious (killing a big defense contract in Boehner's district), Boehner has shown himself to be reasonable (offering negotiation and modest cuts for extensions), and Budget Chair Paul Ryan is the perfect spokesman to lead an adult conversation. This is a marathon, not a sprint.