The Trillion Dollar Question

The US has until August 2 to raise its debt ceiling. If negotiations fail, Washington might soon resemble Athens. And an agreement is looking increasingly unlikely.

As little as a week ago, a real compromise seemed within reach. Barack Obama and John Boehner seemed close to agreeing on spending cuts in the range of four trillion dollars. At a time when unemployment has almost reached ten percent and government services have already been hollowed out, the deal would have been extremely bitter for those affected by the cuts. But it would also have been an unexpected breakthrough. Far from being a short-term patch for the debt problem, it represented a serious effort at a long-term solution.

Yet the deal fell apart. As Moody’s and S&P’s decision to put in question America’s AAA sovereign debt rating indicates, it is now a real possibility that the US might run out of money on August 2 – even though no one doubts that America, as opposed to Greece or Portgual, is able to pay back the debt. What is increasingly in doubt is whether the Republicans are willing to put aside ideology to rescue their country’s economy.

Just consider that the most ambitious debt talks to date failed because Boehner categorically ruled out the idea of raising taxes, even by a little bit. At the same time, various Republican presidential hopefuls – who, it seems, spend most of their time these days trying to look as unpresidential as possible – proudly trumpeted in speeches and TV spots that they would not vote for the US to raise the debt ceiling under any circumstances.

This behavior is irresponsible. What is more, it is embarrassing even from the perspective of the Republican Party’s own avowed principles.

First, it illustrates to what extent the Republican Party, which supposedly prides itself in leadership, is now a mere plaything of the Tea Party. To the average voter it might sound reasonable that legislators should take away the government’s ability to assume credit until it gets its spending habits under control – as though the government were an average guy with a gambling addiction, and sovereign debt a pricey credit card. Those who want to be in charge of the world’s largest economy should know that the analogy does not work: if the US ran out of cash in the short-run, the devastating consequences would be with us for years to come.

Second, the Republicans’ stubbornness in the debt talks shows that the so-called deficit hawks don’t care nearly as much about balancing the budget as they say. If they did, they should see moderate tax increases as an obvious part of the solution. Yet Eric Cantor walked out of negotiations with Joe Biden because he was unwilling to do so much as to close tax loopholes for hedge funds, oil companies and owners of private airplanes.

Third, the Republican stance belies the party’s supposed commitment to the free market. If you reject trillions in spending cuts just because you want to protect the privileges of the owners of private planes, you aren’t in love with Adam Smith – you’re in love with your billionaire campaign contributors. The Republicans once used to advocate for an extreme form of laissez-faire liberalism. Think of that what you will, but at least it was a principled stance. Today’s Republicans, by contrast, call on free market principles only to veil the extent to which they have become the handmaidens of lobbyists and special interest groups.

Democrats and Republicans are playing a game of chicken. They are squabbling in the front seats of a car that is speeding towards an abyss. But instead of working together to regain control of the car, they are waiting for the other party to loose their nerves and jump off – in the naïve expectation that they’ll take hold of the wheel just early enough to avoid catastrophe.

The next steps of this game are predictable. Though Mitch McConnell’s proposed deal, according to which the White House would gain authority to pass debt increases unilaterally, may be tempting to all sides involved, hardliners in the House are likely to vote it down. With no other solution in sight, the Democrats will then be the first to loose their nerves. That, after all, is how these things always seem to play out: the Democrats are too sensible to risk a federal default – and everybody knows it. So, in the end, Obama will reluctantly sign off on most of the Republican demands.

The consequences will be brutal. Recipients of meager welfare benefits will see crucial services cut while the billionaires won’t pay an additional cent for their private jets. And a year from now the whole thing will start over from scratch, with another unjust short-term patch for the problem in the offing.

Despite some hopeful signs a week ago, then, it no longer looks as though the US will be able to institute substantial reforms in the coming years. The debt problem will persist – but Republicans won’t be too unhappy about it, because the rich will continue to get richer, even as the poor get poorer.

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