There is an interesting narrative emerging from the contentious debt limit discussions in Washington: tesponsible politicians from both sides of the aisle have been blocked in their attempts to craft a successful deal by irresponsible, or in Senator John McCain's language, "bizarro" Tea Party politicians.
In the short term that is a fair assessment, possibly without the "bizarro", but in the long term it is a woeful explanation of the present inadequacies of Congress and the President in facing America's debt and deficit problems.
See also US Politics & Economy: Explaining Washington's Dangerous Game of Chicken on the Debt (First, Look at the Tax Cuts)
US Politics & Economy: Scott Lucas on the BBC About the Debt Crisis
First, both plans --- Republican House Leader John Boehner's and Democratic Senate Majority Leader Harry Reid's –-- are essentially worthless. They both increase the debt, and neither includes any credible strategy for reducing America's deficits substantially.
Take the first part of Boehner's two-step plan. It raises the limit by a trillion dollars, in return for finding questionable spending cuts for the same amount over ten years. So a reduction of $100 billion a year in the face of an annual $1 trillion deficit. A reduction of $100 billion when the American debt --- now $14.55 trillion --- has risen by $255 billion in the last three months.
Those numbers might not ultimately matter. No one is doubting the ability of America to fulfil its financial obligations in the short-term. The debt ceiling is, after all, not a determination of whether the country has enough money on hand to pay its bills. And perhaps the United States will be able to avoid another recession and "grow itself" out of worrying about the extent of the debt problem. But in the long term, the United States is on an unsustainable course, and the current debates are merely avoiding the issues that will determine if the United States can hold its position as the world's pre-eminent economy.
With America's GDP of $14.8 trillion now barely exceeds the accumulated debt, we are approaching the point where the US will not be able to rely on a booming economy to solve the problem. Sen. Kent Conrad (D-North Dakota), one of the few politicians in Washington who has persistently stressed the urgency of America's financial future, recently said:
Two of the nation’s leading economists, Carmen Reinhart and Kenneth Rogoff, have just completed a book on this subject, and they concluded:
"We examine the experience of 44 countries spanning up to two centuries of data on central government debt, inflation and growth. Our main finding is that across both advanced countries and emerging markets, high debt to GDP levels (those above 90 percent) are associated with notably lower growth outcomes."
In an interview published on Wednesday, David Beers, the managing director of sovereign credit ratings at Standard & Poor’s, restated the agency's position: “For us, the issue is not the debt limit -- it’s the underlying fiscal dynamics. It’s not obvious to us that this political divide that is proving so difficult to bridge is going to be any more bridgeable three months from now or six months from now or a year from now.”
Alhough S&P may not pull the trigger and downgrade the United States' credit rating immediately, it is not as if politicians have not been warned. The consequences of a downgrade would be a rise in America's federal borrowing costs of $100 billion annually. Neither the Reid or Boehner plan addresses these fundamental "fiscal dynamics" for now or the foreseeable future.
it is not as if the causes of America's debt problems are a mystery, or a recent phenomenon. Here is a chart explaining how the US spends its money:
As Robert Samuelson put it in words on Friday, "Why are we in this debt fix? It's the elderly, stupid":
If leadership is the capacity to take people where they need to go --- whether or not they realize it or want it --- then we’ve had almost no leadership in these weeks of frustrating and maddening debate over the budget and debt ceiling. There’s been an unspoken consensus among President Obama, congressional Democrats and Republicans not to discuss the central issue underlying the standoff. We’ve heard lots about “compromise” or its absence. We’ve had dueling budgets with differing mixes of spending cuts and tax increases. But we’ve heard almost nothing of the main problem that makes the budget so intractable. It’s the elderly, stupid.
Samuelson explains how America's entitlement spending for the elderly can be reformed in an equitable way by restricting benefits to those who truly need them:
The Kaiser Family Foundation reports the following for Medicare beneficiaries in 2010: 25 percent had savings and retirement accounts averaging $207,000 or more; among homeowners (four-fifths of those 65 and older), three-quarters had equity in their houses averaging $132,000; about 25 percent had incomes exceeding $47,000 (that’s for individuals, and couples would be higher.
Samuelson notes that Democrats and many Americans will find the approach unpalatable, but it must be faced soon if America's economy is not to be “sabotaged” by the current crop of politicians in Washington.
These are the facts that the supposedly "bizarr"' Tea Party Republicans are prepared to face, while the supposedly responsible leaders in Congress keep kicking the can down the road (and one wonders how much road is actually left). Tea Party policies to fix the debt and deficit problems are wrong, but at least they have come up with plans like "Cut, Cap, and Balance", a standalone Balanced Budget Amendment, and the Ryan budget to reform health care costs, passed by the House of Representatives but blocked by the Senate. The major immediate worry of the conservatives about Boehner's plan is that it does not do enough to protect America's credit rating.
The real villains of this story are the Democrats who could not even pass a budget in 2010 when they controlled both houses of Congress, and a President who has utterly failed in leading on this problem with his dismissal of the findings of his own commission on reducing the deficit. There are enough moderate Republicans in Congress to have made a deal along the lines of the President's fiscal commission recommendations, if Democrats had been prepared to talk entitlement reform. Instead of taking that responsible approach, they gleefully adopted a "Mediscare'"electioneering strategy.; even as Rep. Ryan was declaring his plan was just a starting point for serious discussion.
Political dynamics may have made any other choice a hard one, but to now turn round and blame America's present gridlock on a small group only elected nine months ago, and with a mandate to stand up for what they are now doing, is more than politics as usual. It is a rewriting, or an alternative interpretation, of America's recent history that deserves to be questioned.
The Tea Party didn't cause America's debt problem --- instead, those politicians who are now lining up to deride them as irresponsible might look in the mirror for the culprits.