Why Washington's Fiscal Follies Will Continue

Kiplinger

Take a long look at Washington today: Government shutdown, the prospect of Uncle Sam defaulting on obligations, jittery financial markets and a paralyzed Congress more inclined toward stalemate than statesmanship.

See Also: Investing Opportunities in Washington's Drama

Get used to it. You'll see this movie again, several times at least, as lawmakers careen from one crisis to the next, only to circle back and wage new wars over the same ground.

The bottom line: uncertainty is certain to last.

There will be no yearlong budget agreements, just more continuing resolutions that fund government programs for a few months at a time. That means several more showdowns in the next year alone, and maybe even another shutdown of the government.

Budgeting by continuing resolution has a political cost. It takes serious fiscal policy initiatives off the table. It's nearly impossible to negotiate complex matters -- altering the tax code, perhaps, or reforming Social Security, Medicare and other ever-more-costly programs -- when the next deadline is just a few weeks away.

The temporary fixes also have a measurable economic impact. The uncertainty undercuts consumer confidence as much as it rattles businesses looking to grow.

Also ahead: More bruising battles over the need to raise the debt ceiling, no matter how the current crisis plays out in the week ahead. Multiple increases within a period of one or two years will leave a lasting impression that the U.S. is burning through cash even faster than it actually is. That, in turn, will embolden the staunchest conservative Republicans to fight against the increases and risk a default, despite warnings that such a result could lead to another recession.

Why is there no end in sight, no hope that cooler heads will suddenly prevail? Part of the answer lies in the outsize influence the tea party has in the House. There are about four dozen tea partyers in the chamber, all Republicans. That's a large enough bloc to threaten rebellion against House Speaker John Boehner (R-OH) and his hand-picked committee chairmen, so the House leadership team is willing to listen to them rather than push through bills with votes from other Republicans and many Democrats.

For now, Republicans favor ideological purity over winning national elections. Playing to the base helps in primaries and in strongly Republican House districts. So look for the House to stay in Republican control in 2014, perhaps beyond.

But it will be tougher for the GOP to win back the Senate and the White House. Voters are more polarized than at any time since 1932, and maybe even since the Civil War. Plus, Democrats have a sizable registration advantage nationally and in most states that have the biggest number of electoral votes. The GOP needs general election help from independents to win the presidency. That help is hard to count on for a party so focused on the base.

The party's best hope to win the White House may be New Jersey Gov. Chris Christie. But the moderate views that would make him competitive against the Democratic nominee in November 2016 are likely to get him into a boatload of trouble with conservatives: They'd leave him in danger of either losing the nomination during the primaries or being badly wounded and short of campaign cash heading into the fall.

That's a recipe for more divided government, and even less compromise than we're now seeing from Congress and the White House.

There is one silver lining, though: Annual budget deficits will shrink for several years before entitlement-program costs soar. Sequestration has flattened spending as revenues recover.

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