As the nation contemplates the fiscal cliff and its yawning abyss, many people wonder if there are any close historical parallels to guide us. Our country has lived through, and endured, many crises, but never one exactly like this. One past budget crisis, however, has some similarities from which we might be able to learn.
In 1988 President George H. W. Bush was elected after making a conspicuous “no tax pledge” (sound familiar?) at the Republican nominating convention. After a year in office, he perceived that the country could not meet its challenges without a major budget realignment. He faced a Democratic Congress, but believed his only choice was to negotiate, putting taxes on the table.
Those discussions began in May of 1990, and lasted into October. From Labor Day on, the negotiations were carried on at Andrews Air Force Base. An original deal, including tax increases and spending cuts, was reached, but rejected by the House. Finally, a new agreement, The Budget Enforcement Act (BEA) of 1990, a bit to the left of the first deal, was enacted.
The president accepted tax increases. The Democratic Congress accepted spending restrictions, including domestic spending caps, and a pay-as-you-go (Pay-Go) plan for entitlements. When the agreement was enacted the country was facing a sequester of 30+ percent, a formidable cliff even then.
Despite those similarities, the differences between 1990 and 2012 are stark. In 1990, our debt ratio was about 45 percent. The 1990 budget problems were short-term. In 2012, our debt ratio is about 73 percent. The long term budget outlook, without entitlement changes, is as dismal as the cliff.
Perhaps even more significant was the fact that in 1990, neither the electorate nor its representatives were as politically polarized as they are today. By no means were the negotiators all one big happy family then, but there were some feelings of comity, and there was still some trust. The atmosphere was reasonably competitive, but today’s animosity was lacking.
There was no 24-7 TV news; cell phones were few; social media had not been invented yet. Critical negotiations were held at Andrews AFB where lobbyists, pressies, and protesters were denied admission. The negotiators labored in a blissfully peaceful environment, with a minimum of political pressure from friends and foes.
A group of old warriors who participated in those 1990 negotiations met last month in the Senate Dirksen Office Building to review the success of Budget Enforcement Act of 1990 and to see if any lessons could be learned.
Recollections were not unanimous, but there was a consensus view that the budget crisis was real, and that the BEA 1990 was a reasonable solution which established budget discipline for the next decade. BEA 1990 formed the underpinning for the glorious Clinton surplus years of the late 1990s.
BEA did not make the surpluses by itself. It was not the only factor, but it was a substantial factor. Lots of other helpful things were happening. The Soviet Union had fallen apart. Defense spending could, and did, come down sharply. The economy was surging. The Resolution Trust improved from a loser to a big surplus. President Clinton raised taxes.
As to lessons to be learned, the BEA participants ventured a few guesses. BEA showed that compromise is possible, and that a proper compromise can have a rather long-lived positive effect on budget policy and the economy. It also showed that a good compromise requires a modicum of trust, and a ton of political bravery, and even then is not universally acceptable.
Other lessons of that era are less encouraging. President Bush was rewarded for his heroic work by losing his re-election bid. The same thing happened to the Democratic House that supported the Clinton tax increase two years later.
Our 2012 summiteers are running out of time. Today’s problems seem to dwarf those of 1990, and the sour political environment seems to have peaked. The electorate is impatient, unhappy, and eager to devour its representatives at the least sign of weakness or impurity.
Nobody denies the task is tougher this time. Nor is it deniable that compromisers are likely to pay the price of election defeat. But, the job still has to done. There must be, among today’s negotiators, at least a few heroes, who are willing to take risks for the Republic. If not, it’s a long way to the bottom of the cliff.
[On the politics of climate impacts in the U.S.] The political alignment around climate impacts is almost the exact opposite of the political alignment around emissions control.