Last week, rating agencies and global financial analysts laid out the choice: fix your public finances or prepare to surrender America’s unique source of growth and competitiveness: its ready access to exceptionally cheap credit and its reputation as the safest haven in the world for nervous capital. What sounded too ambitious a few months ago now appears to be eating your peas.
“S&P says that there needs to be $4,000bn of consolidation over the medium term to stabilise the US fiscal position. That is the extent of the largest deal proposed by President Barack Obama, one that includes revenue increases and cuts to Social Security, but which no longer seems to have much chance of getting through Congress.”
This week, the House of Representatives’ Republican majority will parade their weaponry for next year’s election: the Cap, Cut, and Balance plan. It would reinforce Paul Ryan’s Medicaid and Healthcare cuts and bolster the Republican Party’s pledge to oppose any new taxes by literally making budget deficits unconstitutional. Their proposals will not only provide cover for their sell-out next week when they agree to raise the debt ceiling they will also give both presidential and congressional candidates powerful issues to mobilize their supporters in 2012. For the sake of a parade, however, Washington gridlock will persist and America’s recovery and reputation will falter.
Over one media cycle, the Republicans will both trivialize and radicalize American politics.
By ruling out any significant immediate compromise to narrow the deficit for the medium-term or any measure to stimulate jobs now, the Republicans will set Obama up as an ineffectual president. (On the mischievous extreme, Newt Gingrich would only give the President debt-ceiling increments on a month-by-month basis up to the election.)
However, even if the Republicans nominate a “man of action” uncontaminated by the emasculating politics of Washington, they’ll find themselves running on a platform that can be caricatured as unworkable and dangerous. Something like having a VP candidate during the Cold War say “We should nuke Hanoi.”
Without California’s exceptional human and natural advantages, the Republican balanced budget constitutional amendment would bring the most important Western government down to the level of a near-bankrupt subnational jurisdiction. Standards & Poor’s hasn’t granted California a triple-A credit rating since 1986.
Click on: www.treasurer.ca.gov/ratings/history.asp
California’s dynamic economy, many argue, was a decisive factor in winning the Cold War and in out-innovating Western Europe and Asia over the last three decades. Nevertheless, it hasn’t been strong enough to carry California’s financially incredible state governance. By passing a series of small “popular” constitutional amendments to make politicians behave, California is left with a representative democracy that cannot make tough decisions without teetering on bankruptcy.
That is the agenda of Washington Republicans. They would effectively require super-majorities to raise taxes, to run counter-cyclical deficits, and to finance major new initiatives domestically and abroad. Their constitutional medicine would either add hundreds of $billions to the cost of financing the American government or handicap its ability to act decisively internationally and to provide any measure of leadership over the future health of America domestically.
It would even make it difficult to laugh about how hard it is to get the European Union to make decisions.