All seems lost on Capitol Hill. Fiscal policy has entered a gnarly, uncertain realm but we’re today using our note to lament the lack of custom. Not just because some of our hair is graying, although that’s a factor, more because plenty of congressional members either were never taught or chose not to learn how a bill becomes law. Fiscal negotiations among Democrats and the lack of serious talks between the parties on meaningful but not complex money issues serves only those interested in chaos intended to further erode the process of democracy.
Money flooding into politics, especially after the Citizens United and McCutcheon Supreme Court decisions and forced crisis management have uprooted the committee and bicameral conference committees that once powered legislative action. This means members have much less incentive to get to know one another to discover how best to win without imposing abject defeat on the other side. This breakdown of civility caps how much Washington can do to promote general welfare, or even contemplate it.
We continue to see much more likely odds that the government won’t shutter (at least not for any significant length of time), the US won’t default, an infrastructure bill will become law this year, as will a good chunk of cradle-to-grave Bidenomics people investment ($2 – 2.5 trillion). But with so many factors involved in each outcome and as headline writers grab and inflate each uncertainty or pause in action, it’s prudent to imagine the various scenarios possible in DC this quarter. In this admittedly inexhaustive endeavor we’ll focus most on voter and market reactions such that we can.
Call Your Sibling (Scenario 1)
It’s possible we’re way off base and a significant disaster is gaining steam. In this nightmare, Republicans continue to make everything difficult, President Biden becomes the impediment to his economic agenda, and Democrats become the disarrayed characters they so often are caricaturized to be. A handful of Senate Democrats balk at anything but a severely constraining debt ceiling increase sometime late on October 17. Reconciliation collapses into a ball of intraparty vengeance, using less than half of the money raised by the House Ways and Means committee. Government rolls through a few multi-day closures, infrastructure passes after two trips between the Senate and House floors. Finally, Congress passes a natural disasters emergency supplemental, but the Afghan resettlement money is reduced as the pound of flesh required to help burnt out and flooded Americans.
For Democrats this would be a legislative train wreck politically- and policy-wise. For markets this would remove fiscal policy and federal governance as a mild plus, pointing sentiment in the opposite direction. For many Americans childcare, education, training, climate science, and other innovative investments fall by the wayside as would their collective sentiment about the nation.
Call Your Mother (Scenario 2)
It’s possible some Democrats will insist on lowering the sights and effects of the administration’s economic vision as a handful in both bodies decide less fiscally is more politically for them. In this daydream, there are no worst-case outcomes, but progressives, moderates, and unaffiliated Democrats limit the potential reach of Bidenomics by constraining it shortly after inception. There isn’t much fiscal realignment which means international and business tax provision are minimally adjusted so that infrastructure new money and reconciliation’s stimulative effect is $1 – 1.5 trillion. While this would be a political defeat for the president, it would be enough for many Republicans and some Democrats to claim they were the prudent, successful stewards of fiscal policy.
There will be plenty of lessons in this scenario for politicians and people hoping Washington would rebalance redistributive policies in favor of working families, children, the elderly, and people capable of benefitting from incentives to better themselves and their communities. Few moms would be proud. Markets likely would be disappointed but not devastated while focus returns to monetary accommodation and economic fundamentals.
Call Your Banker (Scenario 3)
To be clear, we remain firmly in this camp. By December 19 or so, all five fiscal pieces fit in a mosaic that not only makes sense to markets but pushes Bidenomics into the daily lexicon of transformative economic policy usually seen only in a president’s first year at the White House. This result is possible only after several successful steps over the coming ten weeks that result in Biden economic policy signals being received as constructive by many C-suite decision makers and markets. That policy makes sense to enough workers, families, and communities that voters and markets rally to Washington’s influence in their lives.
Call One Another (Final Thoughts)
One can understand why stakeholders without voting privileges on the floors of Congress could undervalue the work necessary to produce law. As we’ve seen inclusive progress in who represents whom in Congress, it remains the case that about half of the institution doesn’t propose but finds strength in disposing. In our view, campaign finance laws invite if not demand destruction of the Legislature’s originating principle to do its best for the most Americans possible.
As each member becomes a political LLC, party cohesion is outsourced to actors not visibly responsible for failures they impose on credible policy making. Increasingly since 1990, this dynamic has forced or allowed party heads to subsume the power of committees, especially conference committees which no longer do the heavy lifting often seen last century. This internal corrosion left uncorrected will continue to threaten ‘greater good’ democratic principles underpinning our republican form of government.
