• Political Reality Trumps Policy Ambition
  • Economic Speed Limits Must Be Obeyed
  • Should We Tax Robots?

I worked in Washington, D.C. for nearly a year when I was with the Federal Reserve. I interviewed for the role in mid-March, when temperatures were moderate and the cherry blossoms were out. The content of the work was exciting. I was easily sold.

When I reported for work six weeks later, my perspective quickly changed. The heat and humidity were stifling; newcomers to Washington come to realize that the city was built on lowlands. The oppressive atmosphere extended to the process of governing; I was not naïve to the inhibitions of bureaucracy, but it was very frustrating when viewed from close range.

Today, the White House appears to be experiencing a similar voyage of discovery. Elected on the promise to “drain the swamp,” the President and his associates now find themselves mired in the same morass that limited the progress of their predecessors. The optimism among markets, businesspeople and consumers that greeted the new regime may be at risk of dissipating if forward progress cannot be established.

The effort to replace the Affordable Care Act (ACA) was an important test for Washington. Congress had elected to take up this debate first, for both procedural and symbolic reasons. Given negative public sentiment surrounding the ACA, it was seen as the opportunity to establish some momentum behind the President’s economic program.

Instead, the effort ran headlong into two stark realities. First, outright repeal of the ACA would leave many millions of registered voters without health insurance. Efforts to design a replacement were complicated by the tricky tradeoff between coverage and cost that has challenged policy-makers for decades.

Secondly, differences between the Tuesday Group (moderate Republicans) and the Freedom Caucus (conservative Republicans) remain nearly impossible to reconcile. With Democrats united in opposition to most of the President’s agenda, infighting on the other side of the aisle makes it difficult to move legislation.

The debate over the ACA was frustrating for participants and observers alike. The outcome does not bode well for the broader challenge of reforming American health care. The 20 million people covered by the ACA are important, but rising health care costs for all 325 million Americans threaten to break the Federal budget.

The ACA debacle does also not bode well for the remainder of the White House economic agenda. A continuing spending resolution will be needed before the end of April to avoid a partial government shutdown. As we discussed earlier this month, the debt ceiling will need to be addressed later this year. The extremes of partisanship, recently revealed, make both steps tenuous.

Legislative efforts are now pivoting to tax reform. Putting a positive spin on the situation, Treasury Secretary Steven Mnuchin opined that reforming the tax code would be “a lot simpler” than addressing the ACA.