The deal to raise the debt ceiling damaged the United States in many ways. It did little to address the long-term economic problems of the country while exposing the fragility of American political institutions and the factional nature of this country’s political system. It reveals the politics of America in the age of decline.
Time magazine founder Henry Luce once declared post World War II dominance of the United States the American Century. America’s economic dominance financed its political and military supremacy, giving it the leverage to affect world politics. Too often pundits declared the American Century over, yet these proclamations seemed premature. The American supremacy that historian Francis Fukuyma proclaimed with the fall of the Berlin Wall in 1989 was supposed to reveal an America as the sole economic and political superpower in the world. That did not happen. Now whatever one can say about the debt agreement, it did little to reverse the threats to American dominance.
The debt deal needed to confront two issues: the debt financing the empire in the past, and the debt financing its future. Paying an increasing percentage of the federal budget to debt management is bad accounting. Yet the agreement really did little to confront either. The debt ceiling was raised — partially averting one problem — but the real choices about how to finance long term spending commitments were ignored. Creating a super committee pledged to find $2 trillion plus in savings merely postponed the tough choices for the future. As such, the agreement was more symbolic than substantive.
Four broad issues challenge U.S. financial future
Yet long-term spending and its economic impact are not the only issues that need to be addressed. Collectively, four broader forces challenge America’s financial future, hampering its leadership role in the world.
• The first is the declining economic performance of the country, both short and long term. Short term, the economy is headed to a double-dip recession, simultaneously decreasing tax revenues and increasing demand for government services. Longer term, America needs to reinvest in its infrastructure, schools and workers, modernize its technology, and transition to new energy sources. The debt agreement makes it difficult for the United States by choking off investments required for any of these. Lacking investments in the economy, it will never grow fast enough to generate the tax revenues necessary for the American empire.
• Second, demographics will continue to challenge the United States as its population ages, demanding more health-care expenditures and retirement benefits at a time when the number of workers to sustain their parents decreases rapidly. Health-care reform in 2010 did little to address cost containment, and there is no indication that the debt-reduction super committee will tackle these problems in the coming months, especially as the 2012 elections approach.
• Third, the current tax system is unsustainable. It is inefficient, failing to support economic growth and job production. It is also inequitable, pushing less of a demand on corporations and the wealthy to pay their share. All this was predictable. Nine months ago Obama caved into an extension of the Bush-era tax cuts. Now to pay for them, the poor and middle class must sacrifice. Merely repealing the Bush-era tax cuts would get the United States a long way toward dealing with its longer term debt. Better yet, return the corporate tax rates to what they were in the 1960s, a time when U.S. corporations were their most profitable, and lift the income cap of Social Security taxes, and most of the longer-term debt problems disappear. Instead, the opposite is occurring — the American empire is a corporate one financed more and more by cuts to the poor and middle class.
• Fourth, much of the recent debt is the cost to pay for military excursions abroad in places such as Afghanistan and Iraq. America continues to spend unsustainable amounts to fund its military and foreign-policy objectives. The debt deal did nothing to rethink these priorities and instead threatens military spending as an incentive to make cuts elsewhere.
Fewer resources for U.S. priorities in the world
The debt deal thus does little to generate for the United States the resources it needs to maintain its economic and military position in the world. It is vastly overcommitted already, unable to sustain its current objectives let alone take on new ones in the world. For the future the United States will have fewer resources to pressure for human rights in Syria and Iran, to confront global terrorism, and to economically compete in a world becoming better educated and more productive than America.
The debt-management deal could have addressed the problems facing America but did not. It failed because of a collapse of domestic politics. The American Century was held together by a bipartisan consensus sustained by economic growth. Take away that growth and the consensus disappears. Thus, the factional politics and serious dissensus between President Obama and the Republicans in Congress over the debt ceiling and reduction was so intense because of a basic dispute over how to finance American commitments in an era of declining resources. Lacking economic growth, politics has become a zero-sum game, with clear winners and losers. Here, the debt deal revealed little in terms of a victory to reverse the decline, thereby suggesting an intensity of politics for the foreseeable future.
David Schultz is a professor at Hamline University School of Business, where he teaches classes on privatization and public, private and nonprofit partnerships. He is the editor of the Journal of Public Affairs Education (JPAE), and he blogs at Schultz’s Take.