America's Fiscal Doom


Sometimes it takes an outsider to see what's staring us in the face. His core message, it seems to me, is a clear one. Anyone who wants to cut the debt and restore fiscal balance in America would be insane to vote Republican this fall. Why? Because they have still not abandoned supply-side economics, which was taken to its logical extremes under Bush and Cheney. Money quote:

First, if Republicans win the mid-terms in November, as seems likely, they are surely going to come up with huge tax cut proposals (probably well beyond extending the already unaffordable Bush-era tax cuts).

Second, the White House will probably veto these cuts, making itself even more politically unpopular.

59f8 Third, some additional fiscal stimulus is, in fact, what the US needs, in the short term, even though across-the-board tax cuts are an extremely inefficient way of providing it.

Fourth, the Republican proposals would not, alas, be short term, but dangerously long term, in their impact.

Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programmes, US fiscal policy is paralysed.

I may think the policies of the UK government dangerously austere, but at least it can act. This is extraordinarily dangerous.

The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance.

The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic. In sum, a great deal of trouble lies ahead, for the US and the world. Where am I wrong, if at all?

I do not think he is wrong at all, I'm afraid, although I hold out hope that the sheer scope of the crisis and the rhetoric of the tea-partiers might make the Debt Commission's proposals feasible. I favor more spending cuts than tax hikes in such a grand bargain, but if the GOP cannot raise taxes at all (under the loopy notion that revenue would thereby be reduced) and if the Dems cannot tackle Medicare and are too spooked by Fox to cut defense, then we're truly screwed.

But Wolf's irony is well-taken. The Republican party has long prided itself on strong national defense and conservative economics. In fact, their recklessness in foreign adventurism has destroyed the deterrent effect of American power for a generation, while their fiscal policies have hollowed out this country's core fiscal health that we have almost no room for maneuver.

And yet slogans and amnesia still seem to be winning against arguments and data.

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