Crisis Junkies: Can Washington Break Its Addiction to Emergency Economics?

The country has lurched from one disaster to the next since 2007. Amid a rare lull, here's a modest plan of action for Congress and President Obama.

The country has lurched from one disaster to the next since 2007. Amid a rare lull, here's a modest plan of action for Congress and President Obama.

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Politicians have stared down so many fiscal battles and economic near-calamities during the past six years that it's unclear if they still know how to operate when they're not approaching some sort of crisis.

That question hung over the capital the last two weeks, as Congress voted to temporarily suspend the debt ceiling and as Washington experienced a lull between fiscal battles.

If we're not in a crisis, then, really, what are we supposed to do now?

The economic timeline since 2007 has conditioned us to think this way. We've become adrenaline junkies for the meltdowns and slap-dash solutions, from the credit crisis to the collapse of Lehman Brothers to the housing market dive to the recent battles over taxes and the budget.

Just look at the way policymakers cobbled together the stimulus package, or the Dodd-Frank financial-reform law, a reaction to the near-collapse of major financial institutions. Even the final agreement on the fiscal cliff came well after the 11th hour. Congress had to go all the way over the cliff and then work around the clock on New Year's Eve and the following day to get its act together and pass a bill to prevent a tax hike and spending cuts worth more than $500 billion.

That deal was yet another instance of an economic crisis averted--just barely, and that's become the norm on any type of economic or fiscal policy. "What is dysfunctional is that they haven't been making decisions until the very last-minute," says Keith Hennessey, a former senior economic adviser to President George W. Bush and a former policy aide for Republican Senate Majority Leader Trent Lott. "They've been doing ad hoc decisions for the past two years."

In part, these ad hoc decisions have been warranted, given the unprecedented threat and hangover from the Great Recession. It demanded responsive, nimble moves by government officials and politicians. The stimulus package and its influx of cash, for instance, was cooked up on a crazy deadline, but it's a well-documented fact that it boosted the country's economic output when it needed it and created more than 4 million jobs at the peak of 2010.

The question for 2013 is: Can politicians and policymakers wean themselves off the high of last-minute policy to create longer-term, less reactive plans to create jobs, or boost the housing market, or build better roads and bridges, or overhaul the tax code, or curb health care spending over the next two decades?

Well, actually, yeah. They certainly have the power. It's just not clear if there's the political will. "These guys know how to govern," says Sean West, a director at Eurasia Group, a consulting firm focused on political risk. "The lesson now is that economic fights can be done in parallel with other legislation."

That will be one of the challenges for President Obama's upcoming State of the Union address on Feb. 12--laying out the way his liberal vision fits with the starker and more deadline-oriented fiscal battles we face in the coming months like the sequester, the appropriations process, and the debt ceiling.

There's some hope that the economic brinkmanship has subsided, because Congress voted to suspend the debt ceiling until May and has promised to produce budget blueprints through the more traditional route--called "regular order." But, there's no guarantee that this normal process will produce anything workable, such as a budget agreement. And, it seems pretty clear that House Republicans will balk if Obama proposes big new stimulus spending for things like infrastructure projects and job-training programs.

Instead, other legislation such as immigration reform may serve as one of the best vehicles in 2013 for putting the economy on a sounder path. It's a form of economic policy, only in different wrapping paper.

A smart overhaul of immigration laws could boost the wages and productivity of people already working in the U.S., increase the country's economic output, grow the tax base, and help to fund federal government programs such as Medicare in future years.

The Affordable Care Act also falls into this category of significant economic policy in disguise, even if one doesn't like the idea of a broader government-run health care. The law could create jobs as more people access the health care system.

Though these policies seem like social rather than economic ones, they do change the economy in broad ways. "People argue that we haven't really done anything in economic policy recently," says Mark Zandi, the chief economist of Moody's Analytics, an economic forecasting firm. "But health care reform was a massive piece of economic policy that created structural changes. The other stuff is just trying to get us from here to the next year."

For anyone looking to make sense of the haze following one economic and fiscal crisis after the next, try these takeaways: Economic policy will seem less reactive in 2013. It will also arrive in the form of legislation and ideas not typically thought of as part of the economic canon.

This coming months won't be free of partisanship or angst. (Exhibit A: The upcoming war or 'mini-cliff' over the across-the-board spending cuts known as sequestration.) But politicians and policymakers may have a larger bull's-eye to think about when they're trying to solve the knotty problems of a country still in recovery.