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What’s at stake in shutdown showdown

Nobody looks forward to a rehash of our 2011 political year, one that saw Congress and the White House take the government to near-shutdown in April and to near-default in July. But, without a new agreement, federal coffers will be drained at the end of this month and Washington’s borrowing authority will max out within the following six weeks. High-stakes negotiations are back, like it or not, yet this round can be smoother than 2011.
Learning a few lessons from prominent North Carolinians like Erskine Bowles and Bob Ingram would allow us to do better this time. One lesson is a clear understanding of the difference between shutdown, which can be managed, and default, which cannot. The other is accepting that we cannot permanently resolve our budget differences. These disputes are perennial, and the task is to manage our way forward by compromising on budgets instead of bargaining our credit-worthiness.

Government shutdown and default are easy to confuse. The obvious consequence of both is that federal money stops flowing. But the reasons are very different, as are the consequences.
Shutdown occurs when Congress and the White House refuse to take on any new expenses. That includes absconding from responsibilities ranging from building roads to inspecting meat, but Washington can get things moving again just by agreeing to a new budget. The federal fiscal year ends Monday, and a new budget will be needed for federal departments to open Tuesday.
Default is when Congress and the White House refuse to make our national loan payments. These are old commitments that Congresses have approved and presidents have signed into law. Breaking promises on already-agreed expenses is radically different from deciding not to take on new ones. If a family does that, lenders will be much less willing to loan them money and they will demand much higher interest rates when they do. The exact same goes for our government — and the damage doesn’t end there.
Creditors view the U.S. as the most trustworthy investment in the world, and that makes the interest rate offered to our government the baseline for all other loans. When Treasury’s interest rate goes up, so does yours, and so does everyone else’s. If the Federal Reserve tried to resist rate hikes on this scale, it would strip the dollar of its worth and wipe out our savings.
Hence Lesson One from Erskine Bowles, co-chair of the president’s debt panel: “Using the debt ceiling I think is the wrong place to draw the line in the sand.”
If America wants to be exceptional, the most rudimentary step is keeping our word to pay the bills we’ve incurred no matter how we feel about those purchases. Temporarily shutting down the government out of unwillingness to compromise on a new budget is irresponsible, but breaking our word on bills we already owe — and sending the economy into a worldwide plummet — is far worse. That is not who we are as a country, and we need to make sure our representatives in Washington know that.

At the same time we need to manage our own expectations. Americans strenuously and fundamentally disagree about the budget because it expresses a vision for the role of government. Coming to a long-term budget resolution is extraordinarily difficult in the best of times. Our most feasible ambition today is to manage our way forward step-by-step.
That’s just fine. Occasionally Washington must resolve an issue strategically, but we constructed our government so that its norm is to manage issues gradually. Many want to get their way on the budget now, but few want to surrender their say on the matter in 2014, 2016 or 2018. Until that changes, it’s in the interest of all parties to not push too hard so that victories, while narrower, will be lasting.
Compromise, in other words. Having an end goal in mind is entirely appropriate, but our expectation should be to take steps toward that destination rather than to leap directly to it.
Bob Ingram summed up Lesson Two last fall: “The political climate needs to be made safe for compromise once again.” Ingram is a retired GlaxoSmithKline executive and a leader of North Carolina’s debt reduction movement.
Tough negotiations about our federal budget are coming back, but this round can be smoother if we insist that Washington focus on our future and if we accept that this conversation hinges on compromise. The reality is that we are simultaneously a country that keeps its word on commitments already made and that sharply disagrees about the commitments we’ll make moving forward. That’s not going to change, yet we still can do much better than 2011.
Matthew Leatherman is a resident fellow at the International Affairs Council of North Carolina in Raleigh. This article initially appeared in the News & Observer.


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