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“Rumors” is a bar in Washington, D.C.  (Never been there.)  Rumors are also all we have to go on in anticipating a deal coming out of the budget-resolution negotiations this month.

The rumor is that a deal is relatively close, but still not in hand.  That makes life a bit tricky for those outside the room.  Virtually the entire purpose of this negotiation is to settle upon a number for the total annual appropriations – a so-called “302(a) allocation” – for the ongoing fiscal year (2014).  This is small ball, not a grand bargain.  By the ideal-world calendar, the appropriators would have received that total number on April 15, and that entire process would have been finished on September 30,.  So now, instead of the appropriators receiving their target five and one half months before the fiscal year, they are waiting for the number two and one half months into the fiscal year.  (No pressure, guys.)

Why is that a problem?  The toughest annual appropriations decisions are those over the last few dollars.  And it is virtually impossible even to prepare for those decisions if you do not know even to a close-enough-for-jazz tolerance how many last few dollars there are going to be.

But beyond that point, the appropriators’ ambition this year was to do legislation a little more tailored than a last-year-plus-or-minus-X-percent across-the-board full-year continuing resolution (CR), which has been the highly unfortunate recent pattern.  Even those most viscerally opposed to government as an institution should reject that approach, and instead want appropriations laws that dig much deeper – that perform “oversight” to weed out and disproportionately cut or repeal the least-cost-effective programs.

At least to take a crack at such meaningful legislation, the appropriators asked for their 302(a) allocation to be determined by about a week ago.  Without that number in hand, and with the current CR expiring on January 15, the chances of further short-term CRs and still-later final appropriations legislation are increasing by the minute.  And the shorter the duration of any real appropriations legislation, the less the potential beneficial impact of any well-chosen adjustments, the harder for well-meaning executive branch managers to do their jobs, and the more-abrupt any changes of appropriations levels need to be to hit an annual total much different from the annual rate of the initial part-year CR.

But it is not dreadfully surprising that the budget-resolution negotiators are having a hard time delivering their final numbers.  The substantive preferences of the House and the Senate have little in common.  And especially in the House, but even in the Senate, there is considerable diversity of opinion within the majority.  A deal cut by the House majority’s negotiator could be rejected by his own caucus and so rendered null, void, and an enormous waste of time and loss of face.  Therefore, the negotiation entails frequent consultations with the leaderships and at least indirectly with the full caucuses, which itself takes a lot of time.

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One of the best-ever economist jokes has three econometricians out deer hunting.  They encounter a deer, and the first econometrician takes his shot and misses one meter to the left.  Then the second takes his shot and misses one meter to the right, whereupon the third begins jumping up and down and calls out excitedly, “We got it!  We got it!”

By latest accounts, the current budget conference committee is giving a fair impersonation of those three econometricians, aiming both too high and too low.  They are acting as though this game were on the level (that is another joke for another day), and therefore are trying to produce some real product.  But being incapable in these circumstances of producing something truly real, they are faking it.  The result may turn out to be a substantial disappointment, though it may still turn off the pending appropriations and debt-limit crises – which would be sufficient reason for all of us to turn Washington off for a few weeks, and enjoy the holidays.

Back in August of 2011, the Congress and the President escaped an already far too close brush with the debt limit by creating a Supercommittee, charged with saving $1.2 trillion – or else that amount would be cut mostly from annually appropriated spending.  Almost everyone agreed that if put into effect, this automatic “sequester” would be excessive; and so it was assumed that it would motivate the Supercommittee to cut a deal.  However, this trigger did not have its intended motivational effect, and so it was pulled.

Today, as we approach yet another pair of scheduled train wrecks – one more appropriations expiration and potential government shutdown on January 15, and the beginning of another debt-limit drama on February 7 – the sequester has somehow claimed a leading dramatic role.  This is truly hard to justify.  Not only is the sequester not sound budget or governmental policy, its amount is also arbitrary, and insufficient to solve the actual long-term budget problem.  Yet the new budget resolution conference committee – and the Congress as a whole – have chosen to sanctify the sequester as their reason for being.  They seek somehow to replace the arbitrary sequester savings for the next year to justify enacting appropriations and turning off the debt limit.

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This past Wednesday, the conference committee on the fiscal year 2014 budget met.  The plan is that they will meet again on November 13, two weeks from now.  Their deadline to produce recommendations is December 13, and their objective is to avoid another government shutdown and the impending budget sequester that is set to occur on January 15.

A two-week recess with such a short deadline might not seem promising.  However, the recess is not the problem.  Public meetings of conference committees are not where the work is done.  Under the best of circumstances and with the best of outcomes, a conference committee might have one public meeting, during which all of the members present opening statements in which they say how important the work of the conference committee is; and then a second public meeting, during which the members vote on the final product, and present closing statements in which they say how important the work of the conference committee was.  In between, the important decisions were made in private meetings, generally informal (to avoid requirements that the meetings be held in public).

The real problem is that it is not clear whether anyone in the room has the authority to cut the deal.  The issues at stake long ago have escalated to the leadership level.  In fact, with the margins in the two chambers so narrow, even the leaderships must go to their rank and file hat-in-hand and request their votes.  We know from the last shutdown season that the caucuses can send their leaderships back to the drawing boards, and leave the necessary legislation in limbo.

The opening statements in the budget conference were generally conciliatory.  However, they stopped far short of common ground.  Republicans continued to declare tax increases off limits, while Democrats asked for at least one tax-loophole closure to justify the expected cuts in entitlement programs to “pay for” lifting the budget sequester.  This time, as last time, Republicans have the upper hand, at least in theory.  The Republican House could send the Senate a continuing resolution bill to extend appropriations with the sequester, with an increase in the debt limit attached.  Democrats in the Senate would have to come up with a reason for the House Republicans to change their minds.

It is worth remembering that the ostensible goal of this conference – to remove the sequester, reduce entitlements and / or increase taxes to offset that budget cost, and increase the debt limit – would neither reduce the long-term debt problem nor stimulate the economy.  Of course, there are potential questions of timing of spending increases versus other budget cuts, and there are potential permanent spending cuts that in the very long term would exceed the spending increases.  But speaking broadly, both the potential macroeconomic and fiscal-responsibility stakes in this game are extremely low.  You probably have heard the old saw that it is the low stakes that make academic politics so vicious.  Perhaps the same will prove true about the budget conference, but we have learned very little from the opening meeting.

This post assesses the task facing the budget negotiators on Capitol Hill.  It concludes that those negotiators could achieve real progress by laying out a budget plan based on those fundamental issues on which the two parties should be able to agree.  So rather than trading mini-concessions that would have little long-term payoff, the two sides instead should build the framework of a plan that would have true ultimate beneficial impact.

With the debt limit / shutdown standoff now on temporary hold (thank goodness), attention has shifted to the newly appointed conference committee for the fiscal year 2014 budget resolution, whose formation was a part of the shutdown-settlement deal.  This conference committee is just a bit late – given that it was supposed to produce a resolution to be passed by both chambers of the Congress back on April 15, and the fiscal year already is more than three weeks underway; but better late than never.

In fact, the budget conference committee faces a formidable task.  Job one will be to find a way past the new deadlines of January 15 (when the continuing resolution for the annual appropriations expires, and also when the second round of the budget “sequester” kicks in), and February 7 (when the Treasury again hits the debt limit).  These deadlines might suggest a game of small-ball – finding a few dollars here and a few dollars there to justify another punt, like the one that was played a couple of weeks ago.

But small-ball far understates the occasion.  The last few months have been a disaster for the economy and for U.S. business.  Both businesses and households reacted to the uncertainty of the indefinite shutdown and the impending default by going into a freeze – businesses on hiring and investing, and households on spending.  Meanwhile, government employees who weren’t getting paid and government contractors who were in economic limbo were not engaging in much commerce either.  All of this scrubbed off some of what little momentum the already stumbling economy had.  Washington cannot revert to this self-destructive pattern barely a quarter of a year later, when appropriations could again expire, and the debt limit could again constrain the nation’s ability to pay its bills.  In fact, any hint now of a relapse into shutdown showdown and default deadlock could impose an even greater economic toll.  The nation – in the person of the budget conference committee – must find a better way.

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