Lessons of the Crisis
The debt-ceiling debacle revealed that politics is broken in every possible way and there's no point in explaining complicated matters to the American people.
It is hard to remember a more dismal moment in American politics. The debt-ceiling crisis and the agreement that ended it point to deep dysfunction in our system. In a variety of ways, the episode portends continued short-term economic misery and long-term national decline. It's as if the United States chose at the last minute not to commit financial suicide—but only out of preference for a slower, more excruciating form of self-destruction.
The crisis has, however, been clarifying in several respects. To begin with, we can now say with some confidence that Washington will be doing nothing more to help the ailing economy. President Obama is trying to push a jobs agenda. But for the federal government to spur growth or create jobs, it has to spend additional money. The antediluvian Republicans who control Congress do not think that demand can be expanded in this way. They believe that the 2009 stimulus bill, which has prevented an even worse economy over the past two years, is actually responsible for the current weakness. Their Hooverite approach—embedded in the debt-ceiling compromise—demands that we address the risk of a double-dip recession by cutting public expenditure now rather than later.
So instead of trying to pull out of the stall, the economy simply will have to absorb whatever blow is coming. Some of the congressional Republicans who are preventing action to help the economy are simply intellectual primitives who reject modern economics on the same basis that they reject Darwin and climate science. Others are obviously cynical, desiring the worst possible economy as an aid to recapturing the White House and Senate in 2012. Still others simply do not believe that government action can ever be a force for good at any time or in any way. Whatever their motivations, there is something terribly sad about desperate and unemployed Americans looking for rescue to a party that lacks any inclination to alleviate their misery.
A second lesson is that Washington will not be doing anything to address the fiscal imbalance that threatens America's long-term economic vitality and global power. The deal that President Obama and House Speaker John Boehner tentatively agreed upon in early July was far from perfect, imbalanced in favor of spending cuts over revenues by a ratio of 4-to-1. But that $4 trillion "grand bargain" would have constituted a serious down payment on the deficit, and sent a strong signal to financial markets that our political establishment took the problem seriously.
Instead we got this week's sad bargain—a much smaller, deferred, and contingent reduction in spending projections. This sends quite a different signal: that our political system cannot, in its current configuration, cope with difference between what comes in and what goes out. The quandary is now doubly insoluble, because closing that gap, by all sensible accounts, requires both higher revenues and reductions in entitlement spending. Faced with Republican intransigence on taxes, Democrats are less likely than ever to give ground on Social Security or Medicare.
We now also understand that we're not going to make meaningful investments in our economic future. The conservative position that all spending is evil obliterates any distinction between investment and consumption, between the long-term and the short-term. The United States suffers with an increasingly third-world level of infrastructure, a third-tier education system, and enormous gaps in the preparedness of its workforce. The debate has now ended: Money to upgrade those faltering systems will not be forthcoming. And by the way, the United States isn't going to take on any other major problems either—immigration, tax reform, or climate change, for example. It isn't going to do so for the same reason it has failed at sensible economic management: because the Tea Party has a veto.
Some lessons of the crisis have added significance beyond our shores. One is that America now regards its most solemn financial obligations as flexible commitments. The problem isn't just that some members of Congress were willing to contemplate national default. It was that some of them clearly desired default as a kind of ultimate weapon against social spending. The precedent has been set for using America's credit rating as blackmail. The issue comes up again in less than a year and a half, at which point the masochistic drama of recent weeks could be repeated with a different outcome. This is the way in which the United States resembles Greece—not in its underlying creditworthiness, but in making the matter of paying its debts a political question.
At the level of political culture, we have learned some other sobering lessons: that compromise is dead and that there's no point trying to explain complicated matters to the American people. The president has tried reasonableness and he has failed. It has been astonishing to watch Obama's sheer unwillingness to give up on his opponents after their refusal to work with him on the stimulus package, health care reform, or the extension of the Bush tax cuts last fall. A Congress dominated by mindless cannibals is now feasting on a supine president. But surely even he now realizes there's no middle ground with antagonists whose only interest is in seeing him humiliated.
A slightly different version of this columnalso appears in the Financial Times.