Here we are careening toward the fiscal precipice with a lot of shouting and finger pointing but no brakes. If Moody’s downgrades our debt it will not be because our economy is broken like Greece’s. It will be because our political system is broken like that of a third-world country.
Winston Churchill once said that Americans always do the right thing but only after they’ve exhausted all the alternatives. This may be a case where “the right thing” which is to raise the debt ceiling and to put in place a long-term deficit reduction plan eludes us.
Who’s to blame? To some extent, the problem is the public. The public is in denial. They believe they can have all of their current benefits and not pay for them. Yet without either major changes in entitlements or higher taxes – and a compromise should include both – we cannot balance the long-term budget.
The president can be faulted for not acting sooner. He should, in my view, have endorsed the Bowles-Simpson plan. He should also have insisted on a health reform that included greater spending restraint.
But the Republican stance makes the president look like a rational man dealing with the crazed inmates of an asylum. Consider the following. The rating agencies believe that the unwillingness to raise the debt ceiling – a position endorsed by a large number of House Republicans – will balloon federal spending by as much as $700 billion over the next decade because of higher interest rates. Moreover, House Republicans' unwillingness to allow even small increases in revenues means that the very large spending cuts now on the table, and agreed to by the president, will not occur. If their long-term goal is a smaller government with less taxes, this intransigence is not the way to get there. They have forced the White House to agree to spending cuts, including cuts in entitlements, that would have been unthinkable even a year ago. In short, they have won the battle. They should accept the Democrats' surrender. If they fight until the last man, including the entire economy, is dead, they will lose the war. Why are they doing this?
One possible explanation is that they have pledged not to raise taxes – not even a little bit – and that they fear retribution at the polls and from their party if they cross the line. In this case, they are putting politics above the national interest. A second possible explanation is that they don’t understand that there are not enough votes in Congress for what they really want: a balanced budget amendment to the constitution or an all-spending plan that matches the needed increase in the debt ceiling dollar for dollar. This is like a child demanding more ice cream when the carton is empty. A third explanation is that they believe it would not be so bad for the government to have to survive on a diet that requires immediate spending cuts of about 45 percent. Note that this would mean eliminating most of what government does beyond paying interest, paying the Armed Forces, and benefits to seniors. More importantly, it would very likely be considered a technical default by the rating agencies and would surely tank the economy and the financial system. Unemployment rates under 10 percent could become a distant memory. And, of course, the party out of power is the one that gains when the economy does badly in an election year.
These are troubling times. Welcome to America: land of the insane.