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Supercommittee FAIL: Divided, we fall?

The Congressional budget talks are about to collapse, it appears. Why?  Democrats blame the Republicans for not being willing to accept letting the Bush tax cuts expire on schedule. Republicans blame the Democrats for not being willing to accept cuts to Medicare and Social Security. There will now be automatic cuts, which is better than […]

The Congressional budget talks are about to collapse, it appears. Why?  Democrats blame the Republicans for not being willing to accept letting the Bush tax cuts expire on schedule. Republicans blame the Democrats for not being willing to accept cuts to Medicare and Social Security. There will now be automatic cuts, which is better than nothing, but what are the markets supposed to think when the people who run the US government cannot bring themselves to make a compromise for the greater good of the nation? From the WaPo report:

However, the failure of the Joint Select Committee on Deficit Reduction, as the supercommittee is formally known, comes amid bipartisan talk of turning off portions of the trigger of automatic cuts. In addition, after the summer-long battle over the debt ceiling, one ratings agency, Standard & Poor’s, downgraded U.S. debt based on “America’s governance and policymaking becoming less stable, less effective.” This latest gridlock came after the supercommittee was given unprecedented parliamentary power — any plan approved with at least seven votes was guaranteed a straight up-or-down vote in the House and Senate before Christmas — so the sentiment of a dysfunctional federal government is likely to only solidify.

Similarly, Ezra Klein:

But what the markets, the rating agencies and ordinary Americans should care about is Congress’s inability to make deals in general. Because over the next few months and years, there are deals that absolutely must be made.

Politico’s Mike Allen has an insider-y play-by-play account of how the thing failed. Robert Samuelson says it was a sorry show all around, reflecting “politicians’ preference for fighting over governing,” but at least Sen. Toomey, the Republican, offered a move off of the “no new taxes” hallowed ground; the Democrats were unwilling at all to budge on entitlements. And Obama? AWOL. Samuelson:

The reason we cannot have a large budget deal is that Americans haven’t been prepared for one. The president hasn’t educated them, and so they can’t support what they don’t understand. Left or right, there are no comfortable positions. No one relishes curbing Social Security or Medicare benefits. But without changes, taxes will go way up, the rest of government will shrink dramatically or huge deficits will persist.

I suppose you could blame whichever side you hate the most, but it’s hard to see that either side looks good here. Tom Edsall explains how both sides could see political advantage in the collapse of the supercommittee process. Excerpt:

The risks to both sides of a do-nothing-for-now strategy are arguably outweighed by the many possible advantages. The economic policy gulf between the parties has become so wide that it seems impossible, barring the use of accounting gimmicks, for them to split the difference.

The anti-tax, anti-government ideology of the right cannot be legitimately reconciled the with pro-government, high-tax commitment of the left, and vice versa. On top of that, these competing ideologies have acquired a moral dimension that makes ordinary political give-and-take intolerable.

Notions of unilateral victory, whether through Republican domination of Washington or through the expiration of the Bush tax cuts, become increasingly attractive, no matter how fanciful, if the alternative is engaging in the processes of honest bargaining, accommodation, negotiation and compromise.

Divided, we fall?

UPDATE: In the first hour of trading this morning, the Dow has plunged over 200 points. Thanks, Congress.

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