Why Talk Trumps Action on 4 Economic Priorities

Washington politicians will talk all year about solutions. But don’t expect much.


The Republicans who took control of the House of Representatives this year used their first major legislative act—a vote to repeal the 2009 healthcare reform law—to come down firmly against big government programs. But they may have set an unwitting precedent for the entire year in Washington: Symbolism trumps substance.

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As everybody inside the Beltway knows, the bill to repeal President Obama's signature healthcare reform has no future, because the Senate—still controlled by Democrats—won't approve it, plus President Obama would veto it if they did. If Republicans end up winning both houses of Congress in 2012—plus the White House—it might be a different story. But they'd have to start the process all over again in 2013, which makes this year's repeal effort a pure political stunt.

The same could end up being true for most of the "work" Washington legislators do this year. Even though the recession is over and the damaged economy is healing, we still need many more new jobs, better policies to fix the wrecked housing market, an improved education system, and more competitive companies. Both sides have ideas that we're going to hear a lot about over the next several months.

But you won't be missing much if you simply ignore the bluster. For all the talk, there's little that Republicans and Democrats agree on, and neither side sees much of a reason to compromise. "A divided Congress generally does not enact many bills," analyst Jaret Seiberg of forecasting firm MF Global wrote in a legislative preview of 2011. "Both parties have an incentive to garner publicity by introducing radical bills that have little chance of passing." The rumble out of Washington for the next two years, in fact, will be more like the hyperbole of a campaign than the din of industrious people working hard to get things done. Here are four problems that genuinely need Washington's attention and are likely to generate lots of chatter, but little action:

The shortage of jobs. The unemployment rate is still 9.4 percent, and it could drift back toward 10 percent this year as the economy improves and many jobless people who have given up looking for work decide to try again. Nearly 15 million Americans are unemployed—almost twice as many as before the recession—and many of the lost jobs aren't coming back. Every politician in Washington would like to claim credit for creating new jobs and putting Americans back to work. The problem is that the government has pulled virtually every lever available to policymakers, and gotten unimpressive results. And now, the pressure is on to cut government spending, not boost it to create jobs.

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President Obama insists that creating jobs and keeping American economically competitive are his top priorities. But after the big stimulus bill from 2009, subsidies for car and home purchases, tax breaks meant to stimulate hiring, and billions in aid to states and cities to help keep teachers and firefighters employed, it's hard to imagine what other job-creation magic could be in the Democrats' bag of tricks. Republicans want to cut corporate taxes and ease regulation on businesses, but that won't give companies a reason to hire, either. It will just ease their operational burdens and enhance profitability. If companies use extra profits to buy more stuff, boosting demand and the need for workers, then tax breaks might lead to more jobs indirectly. But corporate profits have been booming for the last year, while hiring has stayed weak. If politicians were honest, they'd probably admit that there's not much more the government can do to boost hiring directly. If there were, they would have done it.

Making America more competitive. President Obama is right when he says that more trade and better innovation are vital for keeping good jobs in America. But creating a new council on jobs and competitiveness, headed by General Electric CEO Jeff Immelt, is a yawner. Immelt says he hopes the council will be "a sounding board for ideas and a catalyst for action," which would make it about as ambitious as every other council that has researched this issue since the 1980s—while the United States has become less and less competitive all the while. Little is likely to change as long as American workers feel they should earn more than workers elsewhere for producing the same stuff, low taxes for the wealthy are a national priority, teachers and parents continue to tolerate a mediocre education system, and other governments like China's continue to fund entire industries. America's competitiveness has never been determined in Washington anyway. It's been determined in Detroit, Chicago, Silicon Valley, Dallas, and yes, on Wall Street.

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The wrecked housing market. The economy won't bounce back in earnest until the housing market recovers, and there are still so many problems that it's hard to know where to start. So the Beltway bunch will toss a few encouraging words at all of them over this year's legislative session, while mostly leaving the housing market to sort itself out. Which it will eventually, though it make take two or five or 10 years.

Advocates for struggling homeowners want Washington to intervene to prevent hasty or questionable foreclosures. But most of those borrowers can't afford their homes anyway, whether the banks are going through proper foreclosure procedures or not. Delaying the reckoning will only prolong the housing bust and push out the eventual recovery. There have been several half-hearted federal efforts to modify mortgages in order to make loans on existing homes more manageable, but those have had limited impact because nobody's willing to take the one step that would actually make it work: Writing off some of the principal balance on underwater mortgages, which would produce a firestorm of protest from all the other homeowners staying current on their loans.

Finally, there are Fannie Mae and Freddie Mac, the doomed housing agencies that exist in the twilight zone of federal conservatorship and have already cost taxpayers about $150 billion to bail out. The Obama administration is supposed to come up a plan to ... do something ... with them soon, and Republicans are already pouncing on Obama for being late with his blueprint for housing reform. But if you had to fix this problem, you'd ask for an extension, too. Bad as they are, Fannie and Freddie back more than 90 percent of all the new mortgages issued today, since there's barely a private market anymore for the kind of mortgage securitizations that sank the housing market in the first place. Some conservatives want to kill Freddie and Fannie outright, which sounds satisfying but would practically freeze all housing activity and probably produce another recession. Others feel that we should just admit that the whole housing sector is run by the government, and get used to it. The ultimate solution will probably lie somewhere in the middle—and require a very deft and slow transition from Fannie and Freddie to something else. "We could be stuck with the status quo for years," predicts Seiberg, "which means a continued role for Fannie and Freddie."

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Cutting government spending. Sure, there will be a few symbolic gestures means to show lawmakers are serious—for real, this time—we mean it!—about getting Washington's deficit spending under control. But the cuts needed to start reducing the national debt will be too controversial to enact in the run-up to a presidential election. So instead of steep cuts in Medicare and Medicaid spending, defense, pork projects, and a whole range of unnecessary subsidies for favored constituents—plus tax increases and a pushback in the Social Security retirement age—we'll get stern talk from "budget hawks" who have their fingers crossed behind their backs.

There will be a game of chicken over raising the government's debt ceiling, which everybody knows will happen at the last minute, once there's widespread agreement to do something more decisive next time. Efforts to dial back discretionary spending to 2008 or even 2006 levels might come close to succeeding, until a majority of lawmakers agree that the economy is still too fragile to risk even small cutbacks like that. And with President Obama pushing for more spending in a few key areas, Republicans will declare a symbolic victory if they can simply keep spending from growing by too much. In 2012, voters will decide if symbolic victories are good enough.

Twitter: @rickjnewman