A Country In Denial About Its Fiscal Future
There are moments when our political system, whose essential job is to mediate conflicts in broadly acceptable and desirable ways, is simply not up to the task. It fails. This may be one of those moments. What we learned in 2011 is that the frustrating and confusing budget debate may never reach a workable conclusion. It may continue indefinitely until it's abruptly ended by a severe economic or financial crisis that wrenches control from elected leaders.
We are shifting from "giveaway politics" to "takeaway politics." Since World War II, presidents and Congresses have been in the enviable position of distributing more benefits to more people without requiring ever-steeper taxes. Now this governing formula no longer works, and politicians face the opposite: taking away - reducing benefits or raising taxes significantly - to prevent government deficits from destabilizing the economy. It is not clear that either Democrats or Republicans can navigate the change.
Our political system has failed before. Conflicts that could not be resolved through debate, compromise and legislation were settled in more primitive and violent ways. The Civil War was the greatest and most tragic failure; leaders couldn't end slavery peacefully. In our time, the social protests and disorders of the 1960s - the civil rights and antiwar movements and urban riots - almost overwhelmed the political process. So did double-digit inflation, peaking at 13 percent in 1979 and 1980, which for years defied efforts to control it.
The budget impasse raises comparable questions. Can we resolve it before some ill-defined crisis imposes its own terms? For years, there has been a "something for nothing" aspect to our politics. More people became dependent on government. From 1960 to 2010, the share of federal spending going for "payments to individuals" (Social Security, food stamps, Medicare and the like) climbed from 26 percent to 66 percent. Meanwhile, the tax burden barely budged. In 1960, federal taxes were 17.8 percent of national income (gross domestic product). In 2007, they were 18.5 percent of GDP.
This good fortune reflected falling military spending - from 52 percent of federal outlays in 1960 to 20 percent today - and solid economic growth that produced ample tax revenue. Generally modest budget deficits bridged any gap. But now this favorable arithmetic has collapsed under the weight of slower economic growth (even after a recovery from the recession), an aging population (increasing the number of recipients) and high health costs (already 26 percent of federal spending). Present and prospective deficits are gargantuan.
The trouble is that, while the economics of giveaway policies have changed, the politics haven't. Liberals still want more spending, conservatives more tax cuts. (Although the tax burden has stayed steady, various "cuts" have offset projected increases and shifted the burden.) With a few exceptions, Democrats and Republicans haven't embraced detailed takeaway policies to reconcile Americans' appetite for government benefits with their distaste for taxes. President Obama has provided no leadership. Aside from Rep. Paul Ryan (Wis.), chairman of the House Budget Committee, few Republicans have.
No one wants to take away; it's more fun to give. All of 2011's budget feuds - over the debt ceiling, the supercommittee, the payroll tax cut - skirted the central issues. There's a legitimate debate about how fast deficits should be reduced to avoid jeopardizing the economic recovery, notes Charles Blahous, a White House official in George W. Bush's administration. But the long-term budget problem, as he says, stems from Social Security, Medicare and other health programs.
Any resolution of the budget impasse must repudiate, at least partially, the past half-century's politics. Conservatives look at the required tax increases and say, "No way." Liberals look at the required benefit cuts and say, "No way."
Each reverts to scripted evasions. Liberals imply (wrongly) that taxing the rich will solve the long-term budget problem. It won't. For example, the Forbes 400 richest Americans have a collective wealth of $1.5 trillion. If the government simply confiscated everything they own, and turned them into paupers, it would barely cover the one-time 2011 deficit of $1.3 trillion. Conservatives deplore "spending" in the abstract, ignoring the popularity of much spending, especially Social Security and Medicare.
So the political system is failing. It's stuck in the past. It can't make desirable choices about the future. It can't resolve deep conflicts.
An alternative theory is that we're muddling our way to a messy consensus. All the studies and failed negotiations lay the groundwork for ultimate accommodation. Perhaps. But it's just as likely that this year's partisan scapegoating implies more partisan scapegoating. Political leaders assume that financial markets won't ever choke on U.S. debt and force higher interest rates, stiff spending cuts and tax increases.
At best, this is wishful thinking. At worst, it's playing Russian roulette with the country's future.