The row in Washington over the US federal debt ceiling raises the question of whether we are observing political theatre or a serious struggle with a large and complicated problem. The answer is a bit of both.
The theatre is obvious. President Barack Obama’s call for a grand bargain with $4,000bn in deficit reduction over a decade belies the fact that in his initial budget proposal in February he ignored his own deficit commission’s recommendations. Many congressional Republicans have put aside a deal for three parts spending reduction, one part revenue increase. Meanwhile congressional Democrats have attacked the fiscal plan offered by Congressman Paul Ryan, while offering no serious thoughts of their own.
The need for long-term spending restraint cannot be debated – it is infeasible and economically suicidal to raise taxes to accommodate the future spending trajectory. But the discussion of tax reform versus tax increases is a political question (though with economic consequences) ripe for public debate in the next year’s campaign, generating a mandate for action for the victor. Continue reading »