Source: ft.com

It is difficult to remember a more dismal moment in American politics. The debt ceiling crisis and the agreement that ended it point to deep dysfunction in our system. In a variety of ways, the episode portends continued short-term economic misery and long-term national decline. It is as if the US chose at the last minute not to commit financial suicide – but only out of preference for a slower, more excruciating form of self-destruction.

The crisis has, however, been clarifying in several respects. We can now say with some confidence that Washington will be doing nothing more to help the ailing economy. President Barack Obama is trying to push an employment agenda. But for the federal government to spur growth or create jobs, it has to spend additional money. The antediluvian Republicans who control Congress do not think that demand can be expanded in this way. They believe that the 2009 stimulus bill, which prevented an even worse economy over the past two years, is responsible for the current weakness. Their approach of depression economics – embedded in the debt ceiling compromise – demands that we address the risk of a double-dip recession by cutting public expenditure immediately. 


So instead of trying to pull out of the stall, the US economy will simply have to absorb whatever blow is coming. Some congressional Republicans are just backward, rejecting modern economics on the same basis that they reject Darwin and climate science. Others are cynical, desiring the worst possible economy as an aid to recapturing the White House and Senate in 2012. Still others simply do not believe that government action can ever be a force for good. Whatever their motivations, there is something sad about desperate Americans looking to a party that lacks any inclination to alleviate their misery.

A second lesson is that Washington will not be doing anything to address the fiscal imbalance that threatens America’s long-term economic vitality. The deal Mr Obama and John Boehner, the Republican House speaker, tentatively agreed in early July was far from perfect, unbalanced in favour of spending cuts over revenues by a ratio of 4:1. But that $4,000bn “grand bargain” would have constituted a serious downpayment on the deficit and sent a strong signal to financial markets that our political establishment took the problem seriously.

Instead we got this week’s sad bargain – a much smaller, deferred and contingent reduction in spending projections. This sends quite a different signal: our political system cannot cope with the difference between what comes in and what goes out. The quandary is now doubly insoluble because closing that gap, by all sensible accounts, requires both higher revenues and reductions in entitlement spending. Faced with Republican intransigence on taxes, Democrats are less likely than ever to give ground on social security or Medicare.

We now also understand that the US is not going to make meaningful investments in its economic future. The conservative position that all spending is evil obliterates any distinction between investment and consumption, between the long term and the short term. The US suffers with an increasingly third-world level of infrastructure, third-tier education system and enormous gaps in the preparedness of its workforce. The debate has now ended; money to upgrade those faltering systems will not be forthcoming. And by the way, the US is not going to take on any other major problems either – immigration, tax reform or climate change, for example. It is not going to do so for the same reason it has failed at sensible economic management: because the Tea Party has a veto.

Some lessons of the crisis have added significance beyond our shores. One is that America now regards its most solemn financial obligations as flexible commitments. The problem is not just that some members of Congress were willing to contemplate national default. It was that some of them clearly desired default as an ultimate weapon against social spending. The precedent has been set for using America’s credit rating as blackmail. The issue comes up again in less than a year and a half, at which point the masochistic drama of recent weeks could be repeated with a different outcome. This is the way in which the US resembles Greece – not in its underlying creditworthiness, but in making paying its debts a political question.

At the level of political culture, we have learnt some other sobering lessons: that compromise is dead and there is no point trying to explain complex matters to the American people. The president has tried this approach and has failed. It has been astonishing to watch Mr Obama’s sheer unwillingness to give up on his opponents after their refusal to work with him on the stimulus package, healthcare reform or the extension of the Bush tax cuts last autumn. A Congress dominated by mindless cannibals is now feasting on a supine president. But surely even he now realises there is no middle ground with antagonists whose only interest is in seeing you humiliated.

The writer is chairman and editor-in-chief of The Slate Group and author of ‘The Bush Tragedy’