The major details of the agreement were known well before the Senate voted on the package. Consistent with past practice, there were unrelated or preferential provisions embedded in the bill.
IMO, the far bigger problem is the lack of strategic perspective that pervades Washington today. There is almost no effort to develop, much less pursue, a deliberate course aimed at achieving long-term goals. Instead, the Congress and President lurch from matter to matter often when no meaningful time is left to address those matters. When time is available, it is wasted. There is no rational basis to justify the lack of effort to develop a credible fiscal consolidation strategy during the nearly 16 months that was available from the time the debt ceiling was raised in August 2011/sequester was adopted. On account of a lack of purposeful design and guiding goals, it is little surprise that the policy solutions often fall far short of what could make a meaningful difference in addressing the nation's big challenges.
S&P cited the growing problems with U.S. policy making in cutting the U.S. credit rating to AA+. Since that time, there remains no credible evidence that the capacity for U.S. leadership to address problems has improved. Meanwhile the long-term costs associated with those problems continue to mount and the time available for transition continues to shrink.
The deficit hawks are right about the long-term. Their big problem is that they assume an immediate adverse reaction, forgetting that the U.S. has incredible debt intolerance that is not available to most other countries. Japan is another country with incredible debt intolerance. Hence, the U.S. has much more strategic flexibility to address its challenges before market reactions impose austerity.
Where Washington's policy makers--both the President and Congress--are wrong is that they implicitly assume that each agreement at the brink of a crisis also expands the time available for meaningful fiscal consolidation. In an excessive short-term orientation, they assume that they can punt and that's exactly what they do. Rhetorical claims of commitment to fiscal discipline are not a substitute for action. Action, of course, or in the U.S. case, the lack thereof, is the measure by which policy makers' actual commitment to fiscal consolidation is judged. There is very little meaningful commitment at this time.
Neither the Congress nor the President realize the context in which the U.S. must make its choices is changing and not entirely in a favorable direction. That context is eroding, albeit slowly, American strategic flexibility. First, economic development abroad means the pool of attractive alternative investment vehicles is expanding. Second, aging in some leading creditor nations, including but not limited to Japan (with its own high relative indebtedness) means that such countries will reduce future investments in Treasury securities and possibly reduce their holdings in order to have the liquidity to deal with their changing demographics. Third, a declining educational advantage for America's workforce vis-a-vis leading developed countries and also a number of developing ones, means that the nation's productivity and innovation (and long-term economic growth) will shrink relative to those countries absent investment to arrest that slowly-evolving disadvantage. Fourth, there are limits to how far a nation can monetize its debt prior to financial market risk perceptions changing. Markets are poor long-term discounters, as humans are inherently short-term oriented, hence the big rally following the fiscal cliff legislation, even as that legislation largely embraced a CBO alternative scenario that makes it more difficult for the U.S. to stabilize, much less reduce its debt relative to GDP. But when the markets eventually catch on, markets can overshoot in the opposite direction in a rush for the proverbial exits. QE amounts to partial monetization of the nation's debt and foreign creditor nations are beginning to discover that reality.
