A bankrupt nation and its failed political system

Columnist

Saturday 29 December 2012

Should you happen to be Greek, Irish, Spanish, or even – just possibly – a Scot, the science of economics and its iron laws might seem a little perplexing.

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Ian Bell

You get told, year after year, that public spending cuts and tax increases are inevitable and right. When the hint of such a possibility threatens America, you are informed that catastrophe looms.

Fiscal Cliff is not, it turns out, the star of the latest Hollywood disaster movie, but the joke is close enough. Obliging the United States to swallow the kind of budgetary punishment the US has so often imposed on others is, apparently, anathema to sage economists. So the non-American rustic inquires: how come?

On the one hand, there are all the familiar business school boiler-plate statements. The US is the engine of the global economy. If the US gets a small dose of recession, the rest of us get the equivalent of a winter vomiting virus. If the US cannot grow, the rest of us must – this seems to be another law – shrink. But is any of that actually true? If it is true, why so?Barack Obama was flying home early from his holiday in Hawaii yesterday in one of those "last ditch" attempts to steer America and its politics away from the cliff. You could also say he was rushing homewards to ensure whoever gets the blame for a simple failure to agree a budget plan, it will not be him, or his party. You could equally assert that Mr Obama was chairing a masterclass in political dysfunction in "the world's greatest democracy".Why would it be so dire for America just for once to pretend – it would never amount to more – to begin to balance the national budget? Smaller countries around the world have been bullied, often enough, into worse decisions. Greece, with a peripheral influence on global economic affairs, has been crucified (no joke intended) on the altar of orthodoxy. Ireland has suffered hellishly. Docile for the sake of docility, we're not doing so well. Yet America must avoid these fates at all costs.When things make no sense, common sense says there is usually a reason. In the modern world, the reason often lies at the messy interface between politics and economics, and in the pretence that one is at all times a rational actor upon the other. America is lost deep in that mess.The US could tax those earning better than half a million dollars a year without bringing civilisation to an end. It could trim a little more from its defence spending. Its conservatives could even concede that when the people elect a president, the people have spoken. On the other side of the aisle, it should meanwhile be possible to admit that the federal government does not always spend wisely when it spends well. That, patently, is not the game being played.On one level, the sport involved is accountancy. Here the idea goes that when the whistle blows at the year's end the Tax Relief Law (2010) will expire and 2011's Budget Control Act will kick in. Republicans ought to like this – big government will have a lot less money – but in fact they fear the consequences of their own previous actions. The federal establishment is liable to be crippled, at least for a while, and voters are certain to be worse off. That's bad politics.You could therefore cut spending, raise taxes, do a lot of one and none of the other, or strike a balance between the two. So, Washington being Washington, all concerned dig in their heels and pay more attention to possible electoral consequences than to the welfare of the nation. That's another version of the game. In this one, for Democrats, Mr Obama has fielded himself as the starring quarterback. The rest of the world, spectating, can only wonder what is really going on.The United States of America is the world's biggest debtor nation. The late Gore Vidal, last voice of the old republic, treated that fact as a historical event with few parallels. He was probably right, for once. Mundanely, however, the simple fact of 21st century life is that the cousins owe money to everyone. Not only are they unable to meet those obligations, they have ceased pretending to cope with the interest. America simply dares anyone else to do anything about it.They make the Greeks look frugal. Their paranoia over indebtedness to China isn't half the story. Any non-American reading this is owed a bundle, as a matter of simple arithmetic, by someone in Pigsknuckle, Arkansas. Yet still we hear the odd tale about a whole planet dependent on the Treasury printing presses of a bankrupt nation in hock for trillions. That's before a joker from the economics department regales us with the one about "fundamentals".America isn't about to go bust. Unlike American workers, the printing presses will be busy. A couple of bouts of inexplicable inflation will sweep the planet. Those holding US bonds will be invited to wonder what follows a default. But amid the hocus pocus, someone might want to ask why an entire international system has been caused to depend on the one player who marks the cards and refuses to settle up. To use the word beloved of certain economists, it does not seem quite rational.Things become more dismal still when a pseudo-science collides with political reality. Let's say we all do depend on the diminishing hope of growth in the US. Alongside the advertised virtues of American capitalism sit the claims made for American democracy. As you have probably been told, since childhood, there is and has never been a finer thing. Some over-selling might have taken place.John Boehner is the Republican speaker of the House of Representatives. In European parlance, he is the leader of his party in the lower house. He faces a re-elected executive president on behalf of one part of a bi-cameral legislature within a system designed to ensure no-one gets over-mighty. Such is the theory.But having had his own fiscal plan rejected by his own party last week, Mr Boehner has recalled the House for a Sunday sitting in the hope the Senate will give him a bill the Senate has already rejected. If, that is, Mr Obama is not better at the deus ex machina thing than everyone believes.If any of the foregoing sounds baffling, don't fret. The point is that the world is supposed to take inspiration, hope and example from the failed political system of a bankrupt nation. Those such as Mr Obama and Mr Boehner never cease to unite in praise of what they call "American leadership". The rest of us might pause, consider, and wonder why once we grew out of fairy tales.An actually rational bet might be that nothing much will happen, globally, if America does go over its fiscal cliff. Thus far the markets, those Gadarene little piggies, have hesitated, but refused to panic. If America's politicians need to draw morals from their squabbling, the fact should count for something. The US matters less and less. History might say it's a pity, but that will depend, as ever, on who is doing the writing.

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A bankrupt nation and its failed political system

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