Cuts Now: Bad Policy and Bad Politics

In governing, there are generally two reasons political leaders make decisions: policy and, more often, politics. That's why the current obsession with near term budget cuts is so mind-boggling. While the long-term fiscal picture is an important policy question, there are not political or policy reasons to make anywhere near the cuts currently on the table.

From a policy perspective, we often hear that the United States is broke. If you only read one thing today, read about why the United States is not. Not only is the US not broke, it's not anywhere close. Bloomberg's David Lynch lays out why:

"The U.S. government is not broke," said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York. "There's no evidence that the market is treating the U.S. government like it's broke."

The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren't attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.

From a political perspective, while, again, people care about debt, the fiscal picture is, at best, a secondary issue. From a new Bloomberg poll:

Americans are sending a message to congressional Republicans: Don't shut down the federal government or slash spending on popular programs.

Almost 8 in 10 people say Republicans and Democrats should reach a compromise on a plan to reduce the federal budget deficit to keep the government running, a Bloomberg National Poll shows. At the same time, lopsided margins oppose cuts to Medicare, education, environmental protection, medical research and community-renewal programs.

While Americans say it's important to improve the government's fiscal situation, among the few deficit-reducing moves they back are cutting foreign aid, pulling U.S. troops out of Afghanistan and Iraq, and repealing the Bush-era tax cuts for households earning more than $250,000 a year.

The results of the March 4-7 poll underscore the hazards confronting Republicans, as well as President Barack Obama and Democrats, as they face a showdown over funding the government and seek a broader deficit-reduction plan.

"Americans do not have a realistic picture of the budget," says J. Ann Selzer, the Des Moines, Iowa-based pollster who conducted the survey. "We all know people who are in debt yet cannot for the life of them figure out where the money goes."

Overall, public concern about the deficit -- which is projected to reach $1.6 trillion this year -- is growing, although it's still eclipsed by employment, with poll respondents ranking job creation as a higher priority.

I understand why a conservative movement would listen to a base obsessed with shrinking government. What I don't understand is why anyone else would.