Dueling Orthodoxies
World markets are counting down the 28 days to the end of the year - when, in America, a fiscal trigger of spending cuts and tax increases (amounting to a nearly 5% hit to GDP in a full year) is automatically pulled. Such an event would send a fragile recovery in the world's largest economy over a cliff - hardly what the world needs right now, as American unemployment remains high, as Europe slips back into recession, as Middle East turmoil rages, and the still export-led Latin American and Far Eastern economies continue to look to foreign demand to spur their domestic employment.
Two English words frame the seemingly implacable debate in Washington - rates and entitlements. "Rates" is the Republican orthodoxy - rates of personal income and other taxes must not rise - and "entitlements" is the Democratic orthodoxy - social security, medicare and medicaid programs must be protected. Without significant change in both, however, America's fiscal imbalance ($16 trillion of outstanding public debt, a level that now exceeds the total value of goods and services produced in America) will worsen, threatening world economic and political stability. It's nothing short of that.
Re-elected President Obama re-established an opening negotiating position to avert the cliff last week - rates must rise for the "wealthy", but not for the "middle class" - and Congress should cede to the President its right to set federal government annual borrowing limits. Two hours ago, House leader Boehner responded, with a 10-year proposal that would restrain entitlement expenditures (by increasing the eligibility age for Medicare and lowering the cost-of-living hikes for Social Security benefits), and raise $800 billion in tax revenues through tax code reforms, leaving the Bush-era tax cuts in place for now for all Americans.
Are these two positions really so far apart as to prevent a fiscal deal - or, at least, a credible down-payment - in Washington by year-end? Especially when the stakes, and the debt, are so high? This writer would suggest that if Washington were a corporate entity, answering to its Board and shareholders, a deal would have been done in the week immediately following the November Presidential election, failing which there would be executive firings.