It is just one skirmish in the great reckoning of our age. The United States can maintain the retiree health benefits, costly wars, public pensions and social welfare programs promised to a generation of citizens. Or it can maintain the low taxes to which Americans have become accustomed. But it will be nearly impossible to maintain both.
Something has to give, and figuring out what that something is will be the crux of many of the great political battles happening around the world.
This week, thousands took to the streets in Greece to protest a plan to slash government services and public pensions and to raise taxes. The plan was passed by Parliament as a condition for the latest round of bailout funds. The riots that followed sent dozens to hospitals as a fog of tear gas hung over parts of Athens.
In Britain, 75,000 teachers and civil servants went on strike last week, protesting changes that could require them to contribute more to their pensions.
And in Washington, the Treasury Department confirmed Friday that the United States will hit its legal debt limit. The Obama administration and congressional Republicans remain engaged in a high-stakes standoff over what conditions will be attached to raising it. If they fail to reach agreement, the nation could default on its debt.
In the best of times, lawmaking can be as ugly as sausagemaking, according to the cliche. It is, therefore, unsurprising that reaching a new agreement on how to revise the social contract would require all the theatrics, street protests and brinksmanship evident in capitals around the world.
The challenge for policymakers against that backdrop is to reach agreement on that core question of how taxes and spending will be changed without causing too much collateral damage in the process.
In the standoff over raising the U.S. debt ceiling, the risk is that delays could cause global investors to lose faith in the government’s ability to honor its debts, potentially causing interest rates to spike and sparking a new financial crisis.
The details of the Minnesota government’s shutdown show what can go wrong when no agreement can be reached. Last week, a judge ruled that only core government functions — public safety, welfare programs, care for residents in state facilities such as prisons, preservation of the government financial system and necessary administration functions — would continue if the government were shuttered.
When lawmakers failed to fend off the shutdown, about 20,000 state workers were officially laid off.
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