At a moment of renewed financial market turmoil, a historic downgrade of US government debt and gathering signs that the recovery has stalled, the capacity of Washington to act with deliberation has seemingly collapsed. This convergence is no accident. Washington’s performance in recent months – reaching its nadir in the phoney resolution of the debt-ceiling fiasco – is one reason why confidence is so depressed. Can this circle of anxiety and incapacity be broken? Yes. Bad as the position may seem, it is not hopeless.
In a way it will be puzzling if the S&P downgrade–despite all the blather about its historic significance–changes anything at all. Certainly, the news should not have come as a surprise: the agency has been talking about it for weeks and the rating for US government debt had been under formal negative review before the announcement. If there is a surprise, it is mainly that the agency had the nerve to go through with it.
More fundamentally, what new information did the downgrade and the analysis supporting it provide? None. After their performance of the past few years, rating agency analysts have, or should have, little credibility in any case. Reports of the initial $2 trillion misunderstanding in S&P’s examination of the Treasury’s books (they used the wrong CBO baseline) lend a tragicomic note, and run their reputational capital down even further. And all this would be true even if US Treasuries were arcane instruments that few investors could afford to monitor carefully, forcing them to rely on the agencies for lack of anything better. In fact, of course, US Treasuries are the most widely and intensely analyzed obligations on the planet. What does S&P know about them that you and I don’t? The informational content of the downgrade is precisely zero.
Perhaps today’s financial-market news has put you in mind of the need to square accounts with your Maker. Or perhaps not. In any case, I warmly recommend Religion in America: A Political History by Denis Lacorne. The author is French and his book, as I explain in this FT review, is a dual history. Its main theme is religion’s role in American politics and culture, but Lacorne is also very interested in the way the French have considered that question over the centuries. Don’t think this makes the book too academic: Lacorne’s approach is illuminating and entertaining. From my review:
The French don’t know whether to find the US admirable or appalling; dementedly religious or godlessly devoted to mammon; a modern secular democracy or a backward Anglo-Protestant theocracy. It was ever thus. Lacorne finds the roots of the confusion in two rival narratives of America’s national identity.
The first comes down from the Enlightenment, the Founding Fathers, and the founding documents of the American project: the Declaration of Independence, the Constitution, and the Federalist Papers. This is the creation story (forgive the expression) of a secular republic that self-consciously overthrew established religion, and built a “wall of separation” between church and state.
The second narrative, which Lacorne calls “Neopuritan”, denies the radical break and sees the American project as “the climax of a continuous progression of freedom starting with the Reformation and culminating with the first New England Puritan colonies”. This is America as the “City upon a Hill” – a biblical phrase used in a sermon by John Winthrop to the first Massachusetts colonists, and co-opted by John F. Kennedy and then by Ronald Reagan more than three centuries later. It sees the American creed as an indissoluble blend of Protestant and republican values.
Then again, Kennedy was a Catholic and Reagan was not religious. Lacorne’s point – and it is surely correct – is that both stories are true. This is what makes America so perplexing, not just to Voltaire and Sartre, but to Americans as well.
It’s a splendid book.
The United States’ fiscal emergency will not be over until a bill to raise the debt ceiling has passed both House and Senate and President Barack Obama has signed it. This can still be done by Tuesday’s deadline. As this column went to press, a deal looked within reach.
Paul Krugman and EJ Dionne agree that too much centrism is what ails the United States. What the country needs is fewer moderates and more people ready to stand firm on principle come what may. (Actually Dionne draws a distinction that eludes me between moderation and centrism–they are not just different but opposed–but let that pass.)
Lacking a Nobel prize, I find this theory odd. If only centrists would come over to the left and deplore Republicans more vigorously, all would be well? Right now, I would be willing to help out–but would this do much to reduce the House Republican majority? If centrist commentators only joined Krugman’s anti-Republican crusade, the country would see its mistake and put things right at the next election? It’s flattering, but surely we feeble soggy centrists have nothing to offer that would improve on the quality of the arguments already put forward by writers such as Krugman, Dionne, and many others. Surely they are refuting conservatism as effectively as anybody can.
House Republicans are dictating US fiscal policy not because centrists have given them a pass, but because voters have given them a majority. This is something that progressives tend not to mention, despite propounding the theory that “elections have consequences” for two years after 2008, and using that theory to justify, for instance, passing a health-care reform that the country was not sure it wanted. In Krugman’s view, of course, 2010 only confirms that more than half the country is evil or stupid. But in that case, what would centrists achieve by taking up arms with progressives? It won’t help. If Krugman is right, the idiots out there just don’t get it. We centrists might as well carry on saying what we think.
My column this week deplored the breakdown in Washington. I was having second thoughts, I said, on my previous optimism about the country’s prospects.
On one side you have the unrivalled energy and ambition of the American worker. On the other you have the unrivalled complacency, self-righteousness and bloody-mindedness of Washington. I never thought I would say this, but I am starting to wonder which will prevail.
Speaking of unrivalled complacency, self-righteousness and bloody-mindedness, you might be interested to read Paul Krugman’s response. He actually blames America’s plight on me, and on moderates like me. What can one say?
By the way, I don’t think that the blame for incapacity in Washington lies equally on both sides, certainly not in the debt-ceiling case. I think previous columns of mine (such as this one) have made that clear. But I do find it funny that Krugman is so appalled by the idea that, if positions were reversed, Democrats would be equally intransigent, and feel entitled to do whatever it took to frustrate what they regarded as a radical GOP agenda. I concede that this prediction on my part might be wrong. But one thing I’m quite certain of is that Krugman would be leading those who would say that the Democrats are not just entitled but morally obliged to stop the evil Republicans by any means necessary, and would be deploring and calling out all those who suggested, ugh, compromise, just as he is now.
If the test was likelihood of swaying the uncommitted, I saw no winner in last night’s broadcast contest. Obama and Boehner were both addressing mainly their own supporters. Neither rose above partisan talking-points.
The “balanced” approach advocated by Obama makes much more sense, though not because taxing corporate jets is a top national priority at the moment. Bearing in mind what is at stake, tirelessly underlining this point is ridiculous. The best thing about the White House’s approach is that it aims to backload the austerity (eg, by extending the payroll-tax cut). The GOP’s biggest mistake is to want to cut spending as much as possible as fast as possible: fiscally speaking, a self-defeating agenda.
So on the substance, Obama has the better plan–but his talk failed to make this clear. Presumably he thinks the argument for gradualism is already lost. Even if it is, though, his comments were odd. Almost in the same breath as “corporate jets” and “millionaires and billionaires”, he endorsed (admittedly without much enthusiasm) the Reid proposal, which includes no extra revenues. It was as though his remarks were written a week ago. Looking at where Congress stands at the moment, Obama’s main theme—we must have revenues as well as spending cuts–was simply beside the point. Congress is no longer even talking about this.
When I moved from Britain in 2005 to live and work in the US, I was a born-again admirer of the American people, the American project and the American system of government. I had no patience with the view that the country was entering its twilight years. I was a militant anti-declinist.
Obama’s decision to campaign for a comprehensive budget solution is right, I think, but it came very late. His new posture conforms to the “leading from behind” model of his presidency to date. In the end, he advocates reasonable solutions capable of commanding sufficient support in the country–in this case, a “balanced” fiscal plan that mixes spending cuts with higher revenues–but he has to be dragged there, let alone led there. He gets to the right place reluctantly. It looks like defeat, so his advocacy is much less effective. Peggy Noonan says his intervention is a net negative. I disagree. It’s a net positive, but not nearly as positive as an earlier forceful intervention could have been.
One day this week he explained why he had decided to back the Gang of Six proposal. What was new about it, he was asked? He said it was new because it was bipartisan: for the first time a plan was getting support from Democratic and Republican senators. What? The broad outline of the Gang of Six plan (which is all we have) is very familiar: it is Bowles-Simpson for slow learners. Democratic and Republican senators on the president’s own fiscal commission all voted for a similar deficit reduction plan months ago. Where was the president back then?
Did the anti-tax activist misspeak when he chatted to the Washington Post, or is the following weirdness his considered position? From the Post’s editorial:
With an handful of exceptions, every Republican member of Congress has signed a pledge against increasing taxes. Would allowing the Bush tax cuts to expire as scheduled in 2012 violate this vow? We posed this question to Grover Norquist, its author and enforcer, and his answer was both surprising and encouraging: No.
In other words, according to Mr. Norquist’s interpretation of the Americans for Tax Reform pledge, lawmakers have the technical leeway to bring in as much as $4 trillion in new tax revenue — the cost of extending President George W. Bush’s tax cuts for another decade — without being accused of breaking their promise. “Not continuing a tax cut is not technically a tax increase,” Mr. Norquist told us. So it doesn’t violate the pledge? “We wouldn’t hold it that way,” he said.
Who knew? Shortly after, Norquist issued a clarification:
ATR opposes all tax increases on the American people. Any failure to extend or make permanent the tax cuts of 2001 and 2003, in whole or in part, would clearly increase taxes on the American people.
So he’s against this $4 trillion tax increase–but his tax pledge, strictly speaking, doesn’t rule it out. That does seem strange. What is it about “oppose any and all efforts to increase the marginal income tax rate” that I am failing to understand? Signatories of the pledge have promised not to reduce tax deductions (expenditures) by so much as one net dollar. But they haven’t promised to stop marginal rates returning to pre-Bush levels, which would raise a net $4 trillion. On what planet does that make sense?
Norquist’s pledge would seem to be a pretty incompetent piece of work, from his own point of view. But look, that’s fine. We need the extra revenues.