Debt Ceiling Crisis Impends, But Catastrophe Is Unlikely Unless Sides Are Obstinate
By HENRY STERN
The impending national debt crisis, now anticipated for August 2, 19 days from today, is not taken extremely seriously by many Americans because of their lack of trust in our government and skepticism over the statements, particularly threats, made by public officials.
The risk, however, is more substantial than anxiety induced by the Doomsday prophet from California who predicted the world would end on May 21, 2011. The prognostication of fiscal disaster is about as credible as the firm budget pronouncement this spring by the administration that the City of New York would lay off the 4,100 most recently hired schoolteachers at the close of the school term on June 28. That forecast was repeated day after day in the tabloids, and may have induced some older teachers to retire, but it alarmed only the faintest of heart. This is New York.
In Washington, the widely publicized negotiations now taking place appear to have degenerated into a game of chicken, with each side maneuvering to place the blame for any loss of services or entitlements on the other. Part of the problem is that there are more than two interests at the table, the White House, and the Senate and House Democrats and Republicans. Each has an interest in the outcome, and their demands and requirements are not the same.
We believe that compromise is the obvious solution, with a package of measures disagreeable to all constituencies. That was the way the budget deal was worked out between the President and Congress that was announced April 8, which now seems like a long time ago.
We also observe that the President got credit (and poll points) for the budget agreement, even though it did not comply with the demands of what is called his core constituency. On the other hand, and we don’t know exactly why this happened, Newt Gingrich ended up being widely blamed for the Federal government’s partial shutdowns in 1995 and 1996. This came after his “Contract with America” campaign in 1994, which led to Republicans winning the House and Senate. ”Uneasy lies the head that wears the crown.”
Rule 20-E as it applies to politics is “Everything is personal.” We don’t know enough of the scheming within the Republican party intended to isolate the Speaker, but our sympathies are basically with people who are trying to put an arrangement together than with those trying to extract the maximum political gain from a potential Constitutional crisis by placing others and themselves at risk. Card games for high stakes have a romantic appeal to many Americans, but the nation’s credit and standing in the world economy should not be jeopardized by elected officials who dislike government in general and would take advantage of any opportunity to weaken or discredit it.
What government’s fiscal problems usually come down to is that people want more benefits for themselves and their businesses at lower costs than they are willing to pay. This is to be accomplished by slaying a devil named “waste”, which often means what the other fellow is getting. When this combination of high rewards for low payments is found to be unattainable, as usually occurs, borrowing is the easiest way to postpone the reality of earning what you spend. This happens in households, in corporations, and in nations from Greece to other lands which are basically subsistence economies, often ruled by tyrants with large appetites.
We predict, without the gifts of a soothsayer, that impending disaster will be staved off, at least for a while, although we cannot foresee the machinations that will be relied upon to achieve that result. The immediate outcome of the dispute, however, will be diminution of the reputations of the squabbling parties, especially if they display excessive self-interest and righteousness in their public statements. In times of crisis, there is a tendency to support the President, especially when those trying to destroy him are unappealing and not particularly interested in the plight of the less fortunate.
We have no idea who the public will ultimately blame for whatever may or may not happen in the weeks to come. Much will depend on who the media choose to hold responsible. On one hand, a debt ceiling is like a rent stabilization level or earnings standard, which should resemble but not surpasss inflation. On the other, if you really hate government, you want to take any occasion you can to keep it from functioning.
Ultimately, victory will go to those who are perceived as more moderate, which suggests the arbitration process in which both parties are coaxed into making their best and final offers, and the arbitrator must choose one of them, which is a powerful inducement to the parties to be reasonable, lest their offers be rejected.
To put it more simply, that is the equivalent in the home of having one child divide the cookie, or the slice of cake, and having the other then choose which slice he or she prefers. It promotes equality of sharing, which is accomplished on the basis of self-interest.
We watch the trains approach on the track, but unless politicians have become even more foolish than they have been, it is likely that a crash will be averted. Of course, in that situation, neither train will be able to get very far down the track, much less arrive at the next station on time.