US Debt-Ceiling Crisis: A Very Un-American Way of Handling?

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The intelligentsia of India is often known to lament over globalization for importing the ‘Jeans culture’ of America into Indian social milieu, if not their riches, or their much desired work-ethics. They now, of course,  have something to cheer about: America has imported the culture of Indian politics—the culture of our political parties sitting on the opposition benches opposing  anything and everything that the ruling party proposes, irrespective of the fact whether it is in the utmost interest of the nation or otherwise.  

At least, that’s the impression one gets looking at how the US President and the Congressional leaders—Republicans and Democrats—struck the last-minute budget deal to raise the nation’s statutorily fixed borrowing limit and thus save the federal government from the embarrassment of debt-default. It, of course, made none happy, for it calls for a spending cut of $917 bn over the next decade in return for a two-stage increase in the debt ceiling of $900 bn. Thereafter, a 12-member congressional committee, consisting of an equal number of Republicans and Democrats, has to identify ways and means for a further reduction of $1.5 tn in budget deficit, which must be approved by the Congress by December 23, 2011, and in return this shall raise the debt-ceiling by a similar amount. If this fails to take shape, it automatically triggers a spending cut of $1.2 tn, drawn equally from domestic spending and defense.

Now, the question is: Will this arrangement solve the US debt problem? As one fund manager observed, it would at best “eliminate default risk emanating from a self-manufactured crisis; there is nothing good” to gloat about.

The political fallout of this murky negotiation is: no acceptance of any cut in the social entitlements, and no rise in tax rates by either side, while what is needed for the US now to steer clear of the current economic crisis is, action on both these fronts. But the system of government proved to be inept in delivering the required. America, by letting the world know that their political system has gone awry, has lost the trust of the world.  Politically it is, thus, a disaster.

That aside, and importantly, the whole compromise hatched at the last minute does not augur well for growth. And without growth, the US has to obviously lean on debt more and more. In simple market terminology, it does not speak well of America, for it fails to generate a ‘feel-good factor’ about America among the investor-countries.

One may, of course, argue that the present arrangement is only for the current budget, for after all, the next Congress can as well alter everything. It is true. But in the meanwhile, much time has been lost: what is immediately needed is much stimulus now for fostering economic growth and employment generation, and greater reduction in deficit in the later years. But such a smart sequenced action appears to be beyond the reach of the present US system.

Isn’t it true that when the taxes are hovering around a historically low 15% of GDP, while the spending is at 24% of GDP, there is no way to close the gap other than by raising the taxes?  And, the public would rather prefer a tax-rise to a cut in the allocations under Medicare, for a great chunk of public is dependent on it. But the polarization of Congress blinded it to these commonsensical realities.

The whole episode reveals that democracy in America is still continuing “as a guiding abstraction rather than an abiding reality in citizen’s life.” As Tolson long back observed, What America needs is:

            “A government of and by and for the People,

             A pact of peers who share and bear the plan,

             A government which leaves men free and equal

             And yet knits men together as one man.”


                                                                                                                                                                                                                 GRK Murty