In this scenario, the rest of the world will keep lending to the United States, borrowing costs won’t rise, inflation will be banished, and the punishment that would befall almost any other country that ran such a lopsided budget will not strike the U.S.
Like all dreams, this one has lost touch with reality. In Washington, legislators seem to accept that amassing trillions of dollars of additional debt is a bad idea. Then they argue furiously about a mere 12 per cent of the budget that, even if half of it were to be eliminated, would still leave the government in a deficit position this year.
The discretionary part of the budget contains programs people count on, everything from education to the environment, food inspections to basic research, farm aid and student assistance. The other parts of the budget are debt, the military and the so-called entitlement social programs of health care for the poor and seniors and social security.
Two bipartisan non-governmental commissions have instructed the country in simple arithmetic: namely, that the budget can’t be restored to sanity without cuts to discretionary spending and entitlement programs, and tax increases. In the dreamland of U.S. discourse, however, no one wants to talk about cuts to entitlement programs or tax increases. Worse, just before Christmas, Congress and the President forged a deal that continued the fiscally ruinous tax cuts of George W. Bush, the ones so tilted toward the already wealthy, and pumped even more discretionary spending into the U.S. economy.
American friends who despair of dreamland discourse acknowledge that it will take a “crisis” to awaken enough people so serious action can occur, instead of the shadowboxing that passes for action.
What would constitute a “crisis”? The stock market is roaring; happy days have returned to Wall Street financiers. Interest rates are low. True, the unemployment rate is above 9 per cent, but that means 91 per cent of Americans are working.
Would a huge run on the dollar be a “crisis”? Would a serious surge in inflation? Or a nose-diving stock market? Or another housing plunge? Or all of the above? No one wants any of the above, but what will it take to awaken Americans from their dream?
It might have been thought that their President would try to alert them to the damage being done daily to their future, and to the serious shift in world power and influence away from a country so hobbling itself with debt.
Barack Obama has obviously calculated that the political risks are too great for candour, so he, too, operates within the dream by proposing some restraint on discretionary spending without touching the entitlement programs, the military or taxes. In this, he is complicit with Republicans in deforming the nature of the debate and ill-informing Americans.
He has obviously reckoned that, with the Republicans believing the problem can be solved by discretionary spending cuts alone, he isn’t going to do anything credible before the next election.
So health care for seniors and the poor continues to rise by 8 per cent annually. The bloated Pentagon budget will be a staggering $670-billion. Still, the Secretary of Defence says any cut of more than $9-billion would cripple the nation’s capacity to defend itself.
With a 5-per-cent national sales tax, of the kind every other industrial country has implemented, the U.S. would be halfway home to budgetary solvency. In dreamland, however, such a dose of reality is unthinkable.
