Celebrating the pending debt-ceiling deal is like a cancer patient in a burning house surrounded by hostile troops celebrating finding his empty wallet. It is not only a solution to a self-created, third-order problem; it is one that is not just inadequate to addressing the really serious challenges at hand; it has almost nothing to do with them.
While criticisms of the deal that note that it barely makes a dent in the debt and buys into spurious principles about how to actually balance the debt are perfectly fair, there are three much bigger problems associated with the proposed agreement.
The first, of course, is that it reveals what a hopeless mess the U.S. political system is. It does so via the process that got us here, the problem being addressed, and the deal's reliance on numerous tell-tale standards of Washington nonsense -- such as the very long-term nature of the cuts or the reliance on yet another committee to address what couldn't be resolved. This would be worrisome in any case. But it is made more troubling because of the other two major problems with the deal.
The second problem is that the deal is more than an agreement to minimal debt cuts, a convoluted process that is more likely to invite mischief among our political class than it is to make a sensible dent in our national debt, and a concession to extremists whose values will bankrupt much of the United States while handing over even more of the national patrimony to a super-empowered elite. It's that it also carries with it an invisible unspoken rider. The rider is that, since this process was so traumatic, the likelihood that any new spending program of size or new revenue program is off the table for the next 15 months or so … despite the fact that the staggering U.S. economy needs both.
(And for those who think the president has scored a "victory" by getting an extension of the debt ceiling through the end of 2012 -- think again. First, there will be plenty of other opportunities for further standoffs in the normal budget process. Secondly, what the president gave up in exchange for this is a process in which the failure to agree on a path forward guarantees nothing but cuts to the budget … not smart ones as much as mutual punitive ones. Thirdly, the deal probably is not big enough to avoid a downgrade.)
The third overarching problem is, however, the biggest by far. It is that this deal addresses a subset of a subset of a debt problem that is just a fraction of the challenge facing the United States right now. Indeed, most of our leaders and experts have yet to come to grips with the fact that this summer's crisis is not a stand-alone problem, nor is it an extension of the market shocks of 2007 and 2008; it is just the latest manifestation of what may well be the longest, most complex, least understood economic crisis in American history.
Call it The Great Stagnation. Or perhaps, call it the Great Decline. It began at almost the same time as the 9/11 attacks but is related more to the end of the boom of the 1990s and the bursting of the tech bubble that ended that decade. Since then, for the first time in U.S. history, we have not created a net new job. Since then, median incomes have fallen -- not just during bad times, but during periods of expansion as well. Since then, the top fifth of the population has grown richer and the bottom fifth poorer, whites dramatically richer than blacks and Hispanics. Since then, the houses that were the real repositories of most of the wealth of average Americans have not only fallen in value, but they have fallen in ways that many think mean they will not recover for years, if ever. Since then, U.S. debt has skyrocketed both in terms of what we acknowledge in our official debt numbers -- the $14-trillion-plus number you are familiar with -- and also in terms of the total debt that includes the costs of our federal official spending imbalances, the costs of our wars, and the underfunded retirement and health-care liabilities we have been building up. There are multiple estimates for the real debt number, but most credible ones start at around $50 trillion.
During this crisis we have seen wars and tax cuts of such scale that they should have created jobs and increases in income to average Americans, but they did not. Since the 2007-2008 phase of the crisis, banks and companies that were hit hard have not only recovered, but they have begun to flourish … and yet average Americans have not only not seen the benefits of that recovery but they have seen their circumstances get worse. Other countries have flourished and now seem more likely to be the engines of future growth. Our primary counterparts in the developed world -- in Japan and Europe -- have also suffered deep setbacks themselves.
In fact, it now seems possible that the United States may be in the midst of the kind of baffling, frustrating protracted slump that has beset Japan. And what is most worrying is that no one has an answer; no one has an idea about how the United States or Japan or some parts of Europe are likely to enjoy any kind of real substantial growth for at least the next several years.
Solving the problems of the Great Depression were comparatively easier because, during that depression, the United States possessed a variety of competitive advantages that were clear and because, ultimately, the public united around acceptance of the idea that the government had a critical role to play in tapping into those advantages. Of course, World War II ultimately ensured the U.S. recovery … but it is highly unlikely a similar stimulus is likely to emerge and no future war would have the same energizing impact on the U.S. economy. Quite the contrary.
We've got a debt ceiling deal. We found our empty wallet. Now, perhaps we can turn our attention to what is almost certainly the most daunting challenge in U.S. economic history.
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