America And The Fiscal Cliff

From Australia

The headlong dash to the fiscal cliff has shuddered to a messy compromise at the very edge. America’s dysfunctional system of federal government has managed to cobble together a deal which has brought relief to the markets. Politicians of all sides preen themselves for behaving like statesmen and women in the national interest. But what has happened in reality? It is called kicking the can down the road. And the can? The can is a spending programme chronically too high and a revenue base which is too low. Its no big deal. If you spend what you do not earn, you borrow. If you go on doing it for too long, at worst you go bust and at best you stagnate, crippled by servicing a debt mountain too big to repay. America is still firmly set on this deadly course.

At the margin is how fast and how deep you should cut and by how much you push up taxes and for whom. But this is marginal tuning of a grand master plan. America has no such plan agreed nor will it be able to find consensus for for one which will work in its current political orientation. One or other party will have to triumph at the mid-term polls before that can happen, so at best the future offers two years of faltering  management of the world’s largest economy.

The baddies in this whole issue of a divided America are the Republicans. This is not a partisan observation, but a commentary on the recorded facts of history. The Reagan doctrine that if you cut taxes, especially for the better off and increase spending without regard for deficits, this would promote growth and cascade wealth from the top of the economy to the bottom, has not worked. This is not surprising as it has never worked in all history and is economic nonsense. It also is socially unjust. Finally it implodes in either economic disaster or social upheaval or both.  Yet this has been the dogmatic economic policy of the Reagan, Bush I and Bush II presidencies. A peep at the figures reveals that all these catastrophic deficits are down to the Republican years. Clinton was a pause of better housekeeping. By Obama things were almost beyond recall.

This bonkers neo-conservative twisting of mathematical certainty into an illiterate economic theory has cost America its place of unchallenged world leader, perhaps for good. Wealth brings power; America is now the worlds largest debtor and debt brings obligation. Trying to use a flamboyant and excessive military to supplant wealth does not bring power; it breeds fear and envy. This is not what the American dream is about. It is not what the founding fathers had in mind. It is not how Americans wish to see themselves. This is most definitely not where the United States of George Washington, modified by Abraham Lincoln, was supposed to be headed.

But all is far from lost. There are three priorities. To advance steadily to a balanced budget, to pay down debt and above all to modify the Constitution to enable decisive Federal government to function within prescribed limits; this is not the same as a structure so checked and balanced that meaningful economic government  is all but impossible without a very significant political tilt one way or the other. Democracy is about constructive tension between competing ideas which drives decision, not balance which assures stalemate.

America can fix all this, but it must make a prompt start. Time is no longer on its side.