Washington Update: Washington Isn’t Prepared for a Recession
The Business Roundtable announced this week that, in its latest reading, the organization’s CEO Economic Outlook Index had its biggest quarterly decline in seven years. Business Roundtable President and CEO Joshua Bolton said, “American businesses now have their foot poised above the brake, and they're tapping the brake periodically.”
Bolton is familiar with economic slowdowns – he was White House chief of staff under President George W. Bush in 2007 and 2008 when the financial crisis and the ensuing Great Recession hit. Back then, federal lawmakers were able to come together to enact various pieces of legislation to meet the challenge of the downturn…eventually.
But, in the hyper-partisan environment in which we find ourselves today, could we expect the same response from Washington if a new recession were to occur?
Before answering that question, we should note that it is not only Bolton and CEOs who are worried. As The Washington Post has reported, in August the number of Google users searching the term “recession” plus the current year hit a level not seen since January 2008. The Bank of America Merrill Lynch reading for consumer confidence hit a record low this month and the yield curve inverted in late August. (As Business Insider explained, all nine major U.S. recessions since 1950 have been preceded by an inversion of the yield curve, which is the spread between long- and short-dated Treasury bonds.)
Last December, the Brookings Institution’s Robert Shapiro said federal lawmakers should pay attention to the yield curve because it indicates when global investors are reaching peak anxiety. Shapiro also recommended lawmakers prepare for a recession this year.
Struggling to think of how lawmakers have heeded that advice?
For good reason. In fact, running through a list of issues at least somewhat connected to the economy, or consumer or taxpayer well-being, one would be hard pressed to find any real action.
One of the issues driving Americans’ and CEO’s recession-related anxiety is concern about the exploding trade war. According to a Washington Post/ABC poll released this month, six in 10 Americans believe a recession is likely in the next year. Forty-three percent of those who feel that way said President Trump’s trade policies have increased the chances of a downturn. (Also notable: instead of making Americans more skeptical of free trade, the president’s policies actually have boosted support. According to a recent CNBC survey, 64 percent of Americans now say they approve of free trade, up from 57 percent early in Trump’s presidency.)
There have been rumblings by Sen. Charles Grassley (R-Iowa), who chairs the Senate panel that oversees trade policy, that he will try to advance legislation reining in presidential trade powers, but, with only about 30 legislative days left in the calendar year, his office has not yet released a draft of that bill. Congress has done little to respond to Americans’ growing worries.
The two parties also are struggling to come together to approve the United States-Mexico-Canada Agreement, the trilateral trade deal that is supposed to replace NAFTA. Canada and Mexico are the United States’ top two trading partners. In a recent op-ed Maria Fernanda Perez Arguello from the Adrienne Arsht Latin America Center at the Atlantic Council advised, “Quick adoption of the USMCA by U.S. and Canadian legislators is desperately needed to restore faith in global economic institutions at a time when rumblings of trade wars and impending recessions dominate headlines.”
The White House has said it wants action on the USMCA this fall, but Congress is unlikely to meet that deadline over the next 30-odd legislative days remaining on its calendar.
Congress also has struggled to come together on issues that both parties agree would help Americans financially. We have heard a lot of discussion this year about “surprise billing,” which refers to instances in which patients face high medical bills despite having health insurance coverage. The House Energy and Commerce Committee and the Senate Health, Education, Labor and Pensions Committee each have approved legislation, but what about the White House?
It has convened a panel. This issue also probably will not be settled this year. The same – a lot of talk and no action – is plaguing lawmakers on the issue of pharmaceutical and other health care pricing issues.
Movement on tax measures also has been slow. Despite bipartisan support, and the fact that it could be attached to federal spending legislation that Congress must pass this year, lawmakers have found no clear path forward on a tax extenders bill even though it includes relatively benign provisions like renewable energy tax credits, cuts to alcohol excise taxes and credits to employers who allow for paid family leave.
The House Ways and Means Committee has passed a tax extenders package, but there is no word yet on when the U.S. Senate Finance Committee might act. And, again, there are just 30-something legislative days left on the congressional calendar.
That’s not all: while House and Senate lawmakers have introduced bills to fix some high-profile errors that were written into the 2017 federal tax reform bill, they have not yet introduced a comprehensive package.
One would like to believe a crisis like a recession would compel Republicans and Democrats to come together, but, as the Business Roundtable’s Joshua Bolton would remind us, action back in 2008 happened relatively quickly – but was hard fought.
Bear Stearns collapsed in March 2008. Fannie Mae and Freddie Mac were forced into conservancy in August and Lehman Brothers followed in mid-September.
Still, two weeks later, the U.S. House of Representatives rejected a $700 billion economic stabilization plan, coming 13 votes short of what was needed for passage. The fallout was quick. At the time, CNNMoney reported “the Dow Jones industrial average down well over 700 points … nearly 7 percent.”
White House, Senate and House leaders were not deterred and legislation establishing the Troubled Asset Relief Program was approved by Congress just four days later.
Congress was a different beast then, however.
GovTrack, a nonpartisan website plotting how often Democrats and Republicans come together to cosponsor legislation, shows only a handful of lawmakers find themselves in the ideological middle. Meaning, they are unlikely to cross the aisle to join a member of the opposite party on any initiative. The overwhelming majority of lawmakers find themselves at the farther right or left.
Without the two parties working together, the number of bills that make it to the president’s desk has slowed dramatically.
In the 107th, which spanned 2001 to 2003 and the recession that came before and after the September 11th terrorist attacks, members of Congress enacted 383 pieces of legislation, including the No Child Left Behind Act that was championed by the Bush White House and the late Democratic Sen. Ted Kennedy. During the 111th Congress, the group that contended with the Great Recession, the House and Senate sent 460 bills to the president’s desk.
Only 56 bills have been signed into law since the beginning of the 116th Congress this past January. If the House and Senate stay at this pace, this Congress will be one of the least productive in U.S. history, if not the least productive.
Congress, of course, is taking its signal from the American people.
Based on research from the Pew Research Center, the Harvard Political Review noted this past spring that “there are no issues that are widely considered top priorities by both Democrats and Republicans today.”
Let’s hope there is no recession. But to get Congress to act, Americans will need to demand it.
Steve Boms is the founder and President of Allon Advocacy, LLC, a Washington, D.C.-based public policy consulting firm. Steve has spent his career focused on complex financial services public policy issues, having worked in the United States Congress on the committee with jurisdiction over banking. He has led advocacy efforts and public policy teams globally for equity options exchanges, large U.S.-based financial institutions, and leading fintech firms. In addition to working directly with Allon's clients, he is a frequent conference panelist and his perspective is solicited by reporters on the technology, financial services, and regulatory beats.
The content and opinions expressed herein are provided by a third party, Allon Advocacy, LLC. This commentary is provided for informational purposes only and does not necessarily reflect the views of Envestnet. The information, analysis and opinions expressed herein reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. It is not intended to constitute legal, tax, securities or investment advice.