End of the Beginning or Beginning of the End?

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After much huffing and puffing, the barons on Capitol Hill have reached a deal that prevents the US government from defaulting on its debt. At the same time they staved off, for the time being at least, a downgrade in America’s credit rating. The president, our Othello, was offstage as the deal was struck, and now finds himself a diminished actor, even as he prepares for his most challenging role as a candidate for reelection.

What in fact has occurred? The United States government has been pulled, kicking and screaming, into taking its first baby step toward fiscal responsibility. Elections, we find, do matter. For, love them or hate them, it is the Tea Party Republicans elected to Congress in 2010 who compelled Uncle Sam to stand up and walk. They and they alone managed to force the issue over the debt ceiling. Of course, they got nothing like the deficit reduction they were looking for. But they have both changed the debate in Washington and achieved a modest first step toward fiscal sanity.

The squeals of distress emitted by Democrats and their supporters in the media (most notably the New York Times) make plain just how much the tide has turned in Washington and, perhaps, the country at large. The consequences of spending beyond one’s means were brought home for the average American in the Panic of 2008. As a result of that financial meltdown, it became common wisdom that out-of-control government spending must, at some point, lead to disaster. It was this realization, as much as opposition to “Obamacare,” that led to the Tea Party sweep in 2010.

Nevertheless, great dangers remain for the Republicans. The second round of spending cuts mandated under the just-passed legislation amounts to a drop in the ocean of American debt. We are still looking at trillions of new debt being added over the coming years — an unsustainable level of deficit spending and borrowing. To solve this problem, revenues must indeed be on the table. The Republicans should come out strongly for real tax reform, with a lowering of both personal and corporate rates tied to the elimination of loopholes and other steps to broaden the tax base. If the Republican Party’s plan is to allow General Electric, for example, to continue to reap billions of dollars in profits without paying any federal tax, they will be signing their own political death warrant.

Additionally, some Republicans are clearly opposed to major cuts in the defense budget. That the people will accept austerity except in defense is an illusion. The United States is not seriously threatened militarily by any power on earth. We currently spend about the same amount of money on defense as the rest of the world combined. The global commitments of the United States must shrink. When Republican Senator Lindsey Graham said, as he emerged from the Senate vote on the debt ceiling, that America must finance Egypt’s transition to democracy, he revealed himself as doubly out of touch, for it is equally absurd to believe either that American dollars can create democracy in the Arab world, or that the average citizen is willing to throw away his hard-earned money on such a will-o’-the-wisp.

Congressional Democrats, on the other hand, are acting as if they have solved the deficit-debt problem, and are talking about moving on “to what Washington does best — creating jobs and opportunity for Americans.” If this is what they truly believe (and it certainly appears that many of them do think this way), then they too are barreling down the road to self-destruction.

The president is talking about a balanced approach, but does he mean it? He ignored the opportunity to move toward a balanced budget in the wake of the Bowles-Simpson commission’s report and the mandate for fiscal responsibility given to Congress by the voters in 2010. And even if he is serious, does it matter? He overreached himself in pushing for revenues in his one-on-one negotiations with Speaker John Boehner, and was then reduced almost to a cypher as Congressional leaders forged a deal largely on their own. His poll numbers are down and his political relevance is in question. The mediocrity of the Republican presidential field is his one comfort.

There is, of course, a dirty secret out there, unspoken but quietly acknowledged by many thoughtful people. It is that nothing the politicians can do will prevent another serious economic crisis, one perhaps much worse than 2008. The debt and deficit issues are not resolvable without draconian cuts and revenue increases, which taken together must derail any prospects for sustainable economic growth and job creation. Resorting to the printing press, as in 2008, is impossible given the level of government indebtedness. In any case it would only postpone the day of reckoning. A Keynesian jobs program was tried in 2009 and largely failed, at a cost of nearly a trillion dollars. Vast numbers of people lacking the education or skills needed in an economy that has been transformed by globalization will be left with nowhere to turn. The private sector cannot use them; the public sector will no longer be able to support them. Therefore we face . . . what? We certainly seem fated to live in “interesting times.”




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Comments

Rodney C.

Enjoyed the article, and thanks, but is it possible that the term "draconian cuts" might seem an insulting way to refer to the returning of money to its rightful owners? Likewise, the failure to place "revenue increases" in quotations might lead a sensitive reader to think that Mr. Harrison buys into THAT word-speak for more taxes.

Otherwise the article made some good points. Perhaps the overall tone was overly optimistic. Personally, I think the few innocent citizens in this society are about to have their lives destroyed.

I appreciate all the contributor's work here.

Thanks

Jon Harrison

Thanks for your comment. Yeah, I should've just said tax increases. I'm spending too much time reading the New York Times and watching CNN.

I stand by "draconian cuts" on the other hand. I'm sure we all agree that government is a helluva lot bigger than it needs to be. I've always thought that Milton Friedman's target of 15% of GDP was about the right size. (I realize that some libertarians feel this is too big.) Anyway, in context, the cuts that need to be made will hurt a lot of people. Think of it as suddenly depriving an addict of his substance of choice. There are millions of people who have come to depend on government assistance for their existence. There are thousands of companies that depend on government contracts to stay in business. When these individuals and companies are denied their drug, there's going to be a lot of pain. The economy in general will take a big hit in the initial stages of withdrawal. Indeed, I'm afraid the rot has gone so far that the we will suffer a major economic calamity and social unrest when the necessary cuts are made. This was in my mind when I chose the term "draconian."

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