STAFF NEWS & ANALYSIS
New Era in DC Is Business-As-Usual … Really?
By Staff News & Analysis - December 16, 2013

The budget deal and Washington's new politics of compromise … The muted market reaction to this week's budget deal in Washington may initially seem like a disappointment. After all, uncertainty over government spending, debt and taxes has consistently emerged in business sentiment surveys as the biggest single factor holding back corporate investment and damaging financial confidence … Viewed from outside the Beltway, the inevitability of eventual bipartisan cooperation on the budget has been obvious since the 2012 election, which essentially settled all the important U.S. fiscal debates. – Reuters

Dominant Social Theme: Sanity has resumed in DC. The art of the compromise is alive and well.

Free-Market Analysis: We return to this meme because it is a popular one. We've commented several times before on the mainstream media's determination to declare the US Tea Party dormant. This Reuters article is a good example of the genre.

What must be galling to those proposing this meme is that – as we have also pointed out – alternative socio-political movements are taking shape throughout the Western world … in England, France, Holland, Germany and even beyond the West.

But nonetheless, we read online and watch videos proclaiming that sanity has returned to Washington DC – as inevitably mainstream media commentators long-concluded it would. Here's more:

Having argued this position all year and having suggested back in October that a deal by this week was very likely, I could hardly be surprised that the markets greeted this event with a yawn.

Short-term players on Wall Street have simply followed the time-honored formula of "buy on the rumor, sell on the news." Business leaders and long-term investors, by contrast, are likely to be relieved and even enthused by this agreement, but their responses will have to be assessed over weeks, months and even years, not just a few days. '

There are, however, several important lessons that can be drawn already from the U.S. budget agreement, several with implications for politics and economic policy in other countries. Here, briefly, are five …

Rather than reproduce these five lengthy points, we'll summarize them and add commentary.

First, we are instructed that "Political analysts, lobbyists and media pundits whose professional reputations or business models depend on emphasizing or dramatizing political battles often present a misleading picture of economic policies." The idea, according to this editorial, is that the reporting going on about conflicts in Washington DC has been exaggerated. We hardly think this is accurate. The House budget (which is more of the same spending and taxing) is being very badly received in of all places the Senate. And it's been roundly blasted by a variety of conservative commentators.

Second, we learn that the 2012 presidential election "changed U.S. political dynamics by transforming the Republican Party's incentives." The idea here is that while "pundits have continued to emphasize the polarization in Washington and exaggerate the power of the Tea Party," the election ensured that the Republicans would have to start cooperating with the Obama administration as "responsible partners in government." This point is a good example of how "off the beam" this article really is. Like other promotional elements of the same sort, the editorial is simply making an assertion, one we think is not just rash but downright incorrect.

Third, we are made aware that shifting perceptions of political incentives has "weakened radicals and strengthened centrists in both parties." Republicans, we are informed, cannot allow the Tea Party to hold them hostage. And why not? Because an additional four years of gridlock would permanently damage the Republican brand with voters and supporters. It would "convey the image of a party unfit to govern constructively." According to the article, US politics has therefore moved gradually back towards the center after the 2012 election. Really? We don't see that way. But in any case, if that were the case, we can only respond, "May God help the American people."

Fourth, we are instructed that "U.S. budget deficits and national debt levels never threatened government solvency or imposed a serious burden on the economy's long-term performance, as was often claimed." Deficits are going down and economic growth is rising. Thus, the budget battle is a charade. Again, we have a hard time with such assertions. Last we looked, real US unemployment was around 25 percent and 50 million were on food stamps. The stock market is up, but that's certainly not a broad-based economic barometer. The US needs a significant regulatory reduction, a cessation of Fed money printing and an across-the-board tax pruning. And that's just for starters. This article proposes more "business as usual."

Fifth, we are reminded that there will be federal fiscal and monetary realignments at some point. Here's how the article put it: "At some point in the future, tax increases or public spending cuts may well be necessary for the U.S. But the scale of any future fiscal challenge is impossible to gauge today, since it will depend entirely on how the U.S. economy performs in the years ahead." We get the idea of spending cuts, but how the heck are tax INCREASES going to help the economy? Comes the answer: "Fiscal challenges of demographics and rising health costs should be met through higher taxes … but until 2016, the only deficit-reduction policy the U.S. needs is economic growth." Okay, a rational point perhaps – except surveying the US economy we are not sure where that growth is going to come from.

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The article ends with the statement, "Tax increases or spending cuts that weaken growth are not just politically unpopular and economically counter-productive, they are fiscally irresponsible, too." So spending cuts are irresponsible? Presumably the US$4 trillion in aggregate that US government confiscates from its citizens and redistributes is not enough, or at least like Goldilock's porridge is "just right."

Thus we conclude our Reuters education, feeling once again as if we have taken a bath in something unsatisfactory. This is the "wisdom" that is being reestablished in Washington DC. Taxes should not likely go down and spending should not, either.

Common sense is thus seen to be prevailing. And yet we cannot contemplate a more wrongheaded conclusion. We return to our own paradigm, in which the electorate has been considerably enlightened by what we call the Internet Reformation.

We are well aware that the impact and ramifications of the Gutenberg press that preceded the Internet Reformation lasted for hundreds of years. This article never explains what is actually roiling the electorate. Presumably it is the "recession." And yet probably it is not.

Recessions and even depressions come and go. What is different now is the education people have received and are receiving about the real reasons for their distress.

Reuters pundits and the mainstream media generally seem to believe that the last decade of the "Internet Era" is ancient history – or even so unimportant as to not be worth mentioning – yet we would argue it is responsible for the very trend this article is now proclaiming has been negated.

We watched House Speaker John Boehner's recent contemptuous words for the Tea Party and for the "radical" wing of the Republican Party generally. We had the same reaction to his statements that we have to this article: What planet do these people live on?

Europe and the US are not recovered from serious financial slumps; the dollar itself is under attack; the Middle East is aflame with war; Japan and China are facing off; BRICs economies are weakening. And yet business-as-usual is supposed to be resuming in Washington.

Granted the above list of difficulties may have been greatly assisted by a Western banking elite that believes when the old order grows unstable that further chaos is necessary to apply before stability – and the growth of globalism – can resume.

But nonetheless, growing problems do exist, and would exist no matter the aggravation. To believe the West, let alone Washington DC, is going to return to business-as-usual any time soon strikes us as not just wishful thinking but a kind of generalized delusion.

After Thoughts

The old order has perished even though its enforcers don't see it yet. Curiously, their masters at the top of the pyramid may be more perceptive …

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