The Real Crisis Here Isn’t Over the Budget or the Debt Limit

The United States, everyone seems to agree, faces an economic crisis, though its character depends on who raises the alarm.  Most economists are mainly worried about financial turmoil and a deep slump if the U.S. government defaults on its sovereign obligations.   Traditional conservatives fret about the prospects for future business investment and growth if Washington doesn’t cut deeply into its long-term deficits.   And progressives are stewing about rising unemployment and falling incomes if the drive to slash the federal budget succeeds.   The truth is, while all of these concerns are justified, the real crisis today isn’t really about the economy.  It’s about our capacity to govern ourselves – and this crisis of governance has more serious implications than any of the economic scenarios now haunting the experts and politicians.

The proof lies in the fact that everyone involved in the process knows full well how to resolve our current economic challenges.  We can avoid the turmoil that would follow a U.S. sovereign debt default by doing what Congress has done countless times before, raising the legal debt limit.  We can avoid stunting business investment and growth by adopting some version of the plans put forth by at least three bipartisan groups in just the last twelve months.  The Simpson Bowles Commission, the Rivlin-Domenici Task Force and, the new favorite, the  Gang of Six in the Senate have all laid out the basic outlines for reforming entitlements and defense spending and raising additional revenues.  And if the press accounts are correct, President Obama and House Speaker Boehner briefly agreed a few weeks ago on a blueprint with the same basic outline.   Even progressive concerns can be addressed by phasing in such a plan slowly, starting a year or two down the road. 

Everybody knows what they have to do and how to do it.  The crisis, then, comes entirely from their unwillingness or real incapacity to do what has to be done.   And since most politicians understand their own self-interest, we have to assume that their incapacity reflects popular sentiment in some way.

It all goes back to the way Washington responded to the financial and economic turmoil of 2008-2009.   Two presidents and two Congresses spent $1 trillion of taxpayers’ money to stabilize the financial system.  Yet, somehow, they neglected to require that the rescued institutions use any of the funds to help the rest of the country, for example by jumpstarting business lending or staunching the waves of home foreclosures.  They didn’t even apply any of those conditions to companies such as AIG, Citigroup, Fannie Mae and Freddie Mac, which the government owned outright or held a controlling interest after the bailouts.  Then, the Federal Reserve compounded this negligence by providing additional trillions of dollars in virtually cost-free funds to every large financial institution, again with no requirements that any of that largesse go to help support American businesses or homeowners.  The result is a corrosive popular cynicism that renders the normal responses to the debt limit and budgetary problems as somehow deeply suspect.

As much as anyone, the President had a profound interest in these steps working out better than they did.  One only has to recall the confident assertions of the White House that 2010 would see a “recovery summer” to know that that the President’s advisors truly believed that the flood of bailouts, stimulus, and free money for the banks would be enough to reignite business activity and stabilize housing prices.  This misplaced confidence is also the only reasonable explanation for the decision to turn the page on economic policy by turning to health care reform. 

Like all good leaders, the President came to recognize and learn from his mistakes.  So he cleaned out most of his original economic team and called for new public investments to invigorate the economy.  By then, however, the political damage was done.  Millions of voters turned to a new group of Tea Party radicals so caught up in their own cynicism about government that their agenda became its dismantling.  And with many of those radicals winning office by first defeating traditional conservatives like Utah’s Bob Bennett for GOP nominations, it put a quickening fear of involuntary retirement in the hearts of many GOP leaders.

The current crisis of governance comes from these radicals’ decision to begin their dismantling by refusing to approve any increase in the legal debt limit.  Some say so directly; others couch it in a catalogue of extravagant demands to slash spending and raise no new revenues.  So far, at least, the radicals’ intransigence has precluded the kind of compromise that the President and traditional conservatives seem prepared to carry out.

That leaves the resolution of this crisis largely with the Republican leadership.  Can John Boehner, facing an underground challenge from the radical Eric Cantor, and Mitch McConnell, facing a similar threat from Jim DeMint, face down their Tea Party members and cut the deal with the President?   And can the President give them some cover by mobilizing public support for such a compromise from the majority of Americans who remain cynical about government, even as they want to preserve most of it? 

If they fail, we may all face an economic deterioration that will only further magnify the public’s cynicism.  And, who knows?  We could also see new forms of radicalism emerge across the political spectrum which would make governing the world’s most powerful and important nation even more difficult.