18
Oct

None of the deeper problems with American government was solved this week

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Imagine you are in a taxi and the driver suddenly turns violently and speeds towards a wall, tyres screeching, only to stop at the very last moment, inches from the bricks—and cheerfully informs you that he wants to do the same to you in three months time. Would you be grateful that he has not killed you? Or would you wonder why you chose his cab in the first place?

That is the journey Congress has taken the American people on over the past few weeks (see article). The last-minute deal to raise America’s debt ceiling, avoid a default and reopen the government at least until mid-January, which was signed by the president on October 16th, is welcome only compared with the immediate alternative.

For a long time American politicians have poured scorn on their European peers for failing to deal with the euro crisis. This week Washington equalled Brussels on one measure of dysfunctionality and surpassed it by another. The way in which the Democrats and Republicans, having failed to reach any agreement, decided to “kick the can down the road”, was deeply European. The deal allows the government to stay open till January 15th and the debt ceiling to be raised until February 7th. Just as America’s economy seems to be recovering, with the promise of GDP growing by 2.7% in 2014, it could face another shutdown of the kind that has just sent consumer confidence to a nine-month low and knocked back growth in the fourth quarter by an estimated 0.6 percentage points.

The way in which the Americans have surpassed the Europeans is the unreality of their discussion. The Europeans at least talk vaguely about banking unions and other solutions to their mess. In America the immediate budget deficit—at 3.4% of GDP—is smaller than that of many European countries. Indeed the danger is of too much tightening in the short term. But the country’s long-term fiscal problem is immense: it taxes like a small-government country but spends like a big-government one. Eventually demography—and the huge tribe of retiring baby-boomers who expect pensions and health care—will bankrupt the country. By the IMF’s calculation, if America is to reduce its debt to what it regards as a sensible level by 2030, allowing for all this age-related spending, it needs a “fiscal adjustment” of 11.7% of GDP—more than any other advanced country other than Japan. Yet the Republicans refuse to discuss tax rises, without which Barack Obama and the Democrats refuse to discuss cuts to entitlements: neither of those things had anything to do with the impasse of the past few weeks. Read more…

As published in www.economist.com on October 19, 2013 (from the print edition).

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