The electioneering has stopped — and the speculation has begun!
With the election behind us, the world of politicians, pundits and bloggers has turned to what it all means — and speculation on what will occur as a result. I’m going to forgo the analysis of what it means — that is subject to as many interpretations as there are points of view. I’m not sure that I even want to try to speculate on what will occur. But here goes.
First of all, all most everyone agrees that the likelihood of political gridlock is high. There are some who hold out hope for compromise leading to positive action. I think that is likely only on marginal matters. Both sides will want to avoid the government shutdowns of the 1990’s. But coming up with a budget that both sides can live with will be a test. I would point out that Congress has still not passed the appropriations for FY 2011 — which started in October. The lame duck may simply pass another continuing resolution and push the whole mess off to the new Congress.
The budget will be item number one on the agenda. The new House GOP majority is pledged to cut spending. But, as David Wessel points out in his WSJ column today:
as Republican spending cutters move from wooing voters to legislating, they confront two realities: Cutting government spending in general is popular; specific, substantial spending cuts are not. And bringing down the deficit by spending cuts alone, particularly cuts in annually appropriated domestic spending, is, well, arithmetically challenging.
Those cuts may hit programs important to restoring our economic competitiveness — such as research funding (see NY Times story). And Congress was never able to reauthorize the America COMPETES Act (passed by a large bipartisan majority in 2007) because of a dispute over the funding levels and some of the programs.
Of course, there are those who think gridlock is just fine. They subscribe to the idea that government is always and everywhere the problem. If government simply comes to a halt, then the economy will work itself out. Needless to say, I disagree with that view. And I think the events of the past two years have only reinforced my beliefs.
But above and beyond the financial collapse and the enduring Great Recession, I believe there are major steps that the government needs to take to foster innovation and the utilization of intangible assets — as I have written about extensively in this blog (see this earlier posting for example). Those needed actions are unlikely in an environment of gridlock.
But we will see. I am hopeful that there are some areas where everyone can agree — such as expanding the scope of the MEP program to include innovation in new business methods and product development and to include services for improved intangible asset management. There are a number of other programs that both sides of the aisle should be able to support (see our working paper Crafting an Obama Innovation Strategy and our policy brief Intellectual Capital and Revitalizing Manufacturing).
One final heads up. Two early indicators of where we may be heading will come up this spring. The first is the FY 2011 appropriations – as I mentioned earlier. The second may be more important: the federal debt ceiling. Sometime before summer, the government will need to raise the debt ceiling. If it does not, the government will be unable to borrow additional funds and will not be able to make interest payments. Technically, the US government will then be in default. The consequences for financial markets are likely to be chaos. We faced such as situation back in the 1990’s when the GOP controlled Congress refused to vote to increase the debt ceiling. After some nail-baiting maneuvers by the Treasury to stave off default, a compromise was reached. Whether such a compromise is possible in today’s political climate remains to be seen.