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Friday, April 15, 2011

EDITORIAL

No way to run a government

A shutdown of the United States government has been averted. At the last minute,negotiators from the Republican-controlled House of Representatives struck a deal with their Democratic Party counterparts from the Senate. The final compromise cuts $38.5 billion from the 2010 budget. While that sounds like a lot, it is barely a drop in the proverbial bucket of red ink that is drowning the U.S. economy. Worse, it is merely the first clash in a budget battle that is going to intensify.

This game of legislative "chicken" — daring the other side to do something stupid and dangerous, like shutting down the government when the economy is fragile — is no way to govern. It is difficult to take the idea of U.S. leadership seriously when its elected representatives act like this.

When he submitted his 2011 budget in February 2010, President Barack Obama proposed to spend $3.8 trillion. Despite controlling both houses of Congress, the Democrats did not pass the budget before the November elections, which gave the GOP control of the House of Representatives.

Many in the new crop of Republican legislators were fiscal hawks, committed to cutting the deficit (which would have grown $1.65 billion as a result of the Obama budget) and to cutting the size of government. For many of them, any compromise in efforts to reduce the deficit by $100 billion in 2011 — and $1 trillion over a decade — was a betrayal of their election mandate. In a world in which the government "is the problem," as Ronald Reagan, the patron saint of conservatives, noted in the 1980s, they welcomed the prospect of a government shutdown.

While reducing the federal deficit must be a priority, most economists believe a government shutdown as the economy struggles to escape recession would be a disaster. It would deprive millions of citizens of support they need — from unemployment checks to tax refunds — to deal with difficult economic conditions. It would furlough hundreds of thousands of federal workers, depriving them of income. It would insert additional uncertainty into the calculations of businesses.

In short, it would deprive the economy of significant stimulus and stability as the country tried to regain its footing.

GOP hawks stuck to their guns even though other members of their party remembered the last time the government shut down. That was in 1995, when Republicans felt similarly empowered after a 1994 election groundswell. Voters then blamed the party for acting irresponsibly and those gains were reversed in the 1996 elections.

Sober GOP leaders feared they would suffer a similar fate if they refused to compromise this time around. The result was an 11th-hour deal, reached Friday night last week minutes before the government would have to shut down. While the final agreement called for $78.5 billion in cuts from President Obama's original budget proposal, it also added $40 billion to federal spending.

Therefore the final deal actually means there will be $38.5 billion in cuts. That is, as Mr. Obama noted, "the largest annual spending cut in our history." It is also peanuts given the scale of total U.S. government spending. Worse, the agreement only covers fiscal 2011, which is already half complete. The 2012 budget will yield another bruising fight. Republicans are aiming for still deeper cuts in their goal to reshape the contours of the federal government. That battle will focus on entitlements — Medicare, Medicaid and Social Security — in an attempt to transform the very relationship between the U.S. government and its citizens. As one GOP leader explained, the 2011 budget battle "is the first bite of the apple."

More immediately, however, is a seemingly mundane measure that could have even more profound implications for the U.S. and the world. There is a legal limit — the debt ceiling — to how much money the government can borrow. That figure is $14.29 trillion and, according to the U.S. Treasury, the U.S. will hit that amount no later than May 16 (although it may be able to squeeze out another two months through legal technicalities).

If Congress does not raise that limit, then the U.S. would technically default on its debt — the trillions of dollars it has borrowed in the form of its bonds. That would be, by all accounts, catastrophic. It would mean that investors around the world would lose faith in the confidence of the U.S. to pay its bills as Washington could not borrow more to service its debt.

Given the U.S. dollar's status as the world's reserve currency, a U.S. default would undercut the foundations of the global economy. Yet the deficit hawks are prepared to hold that legislation hostage to force still more budget cuts. It is a dangerous strategy.

It is dangerous not only because it threatens U.S. economic stability and could visit considerable uncertainty on the world, but it is also a body blow to U.S. credibility in all policy concerns. It suggests that parts of the U.S. body politik are prepared to risk "financial Armageddon" (as one Republican politician suggested) to advance their agenda. It indicates an absolutism and narrowmindedness that is contrary to the very nature of democratic politics — the forging of consensus to accomplish nationally agreed goals.

This "consequences be damned" hostage-taking bodes ill for the ability of the U.S. to lead, a notion that it takes seriously. It is the height of irresponsibility. It is certainly no way to govern.



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