Among the benefits of having spent the past several weeks in India: getting away from the tiresome, intellectually vacuous debates over the federal budget here in Washington. It’s now clear that we’re into the political equivalent of trench warfare, and the battle is likely to drag on now for years without any definitive or satisfying resolution.
It all began in December with the bipartisan deal on extending the George W. Bush tax cuts, followed by a series of continuing resolutions setting spending for the fiscal year that is already half over. The latest came Friday night, just minutes before a looming government shutdown. But even before the details of that compromise were released, the the brinkmanship began over the next crisis, a threatened default by the U.S. government sometime in early July. Republicans now threaten that they won’t authorize an increase in the debt ceiling unless it includes promises of even deeper spending cuts next year and beyond.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
However disruptive a government shutdown might have been, it would be a mild tremor compared with the global financial tsunami that would ensue if the world’s biggest and most trusted borrower were unable to repay its debts when they come due. Among the many disastrous consequences would be a big spike in U.S. government borrowing costs, which when you’re carrying $14 trillion in debt has pretty dire implications for the deficit that Republicans say they are trying to reduce. Every one percentage point increase in interest rates would add $140 billion to interest payments every year, more than offsetting the beneficial effect of all those spending cuts that the Republicans have worked so hard to achieve.
Even if we manage to avoid a debt default, however, the budget battle will not be over. At that point, attention would immediately shift to the budget resolution and appropriation process for next year. If history is any guide, the probability of agreement on those before the start of the fiscal year on Oct. 1 is approximately zero, which means there will have to be another round of continuing resolutions to avoid a government shutdown. Inevitably, those skirmishes will spill over into the 2012 election year. The most likely political outcome is that President Obama will be reelected and Republicans will lose a few seats in the House but pick up a few in the Senate, setting the stage for four more years of the same brinkmanship and stalemate.
I honestly don’t know if the American public has the psychological stamina to stick with that process — certainly, I don’t. What I do know is that such a breakdown in the institutional framework of government is what happens to global superpowers at the point when they begin to lose their edge. By the time one party or the other finally wins this battle of political attrition, the country will have likely fallen into greatly reduced economic and geopolitical circumstances.
Sadly, much of the public discourse that surrounds our budget debate ranges from politically naive to economically moronic, with the fault to be laid at the feet of politicians who simply refuse to lead.