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America the Resilient

12:00 AM, May 14, 2011 • By IRWIN M. STELZER
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Phoenix—There is something bracing about a trip away from Washington, a town in which it is widely accepted that no person of prominence means what he or she says. The president says that he will not sign on to any significant spending cuts, and the Republicans say they will not sign on to any tax increases. They all know that it is likely some combination of both could in the end be part of any deal that is cut to bring the deficit under control.

Arizona sign

The president says he will not allow the need to raise the debt limit and avoid default to force him to back off on any of his “investments” in America’s future. The Republican speaker of the House says his party will refuse to raise the debt limit even if this forces the country to default unless the president agrees to trillions in spending cuts. Indeed, some Republicans are beginning to wonder whether hitting the ceiling might not cause a bump in Uncle Sam’s head: the Treasury can sell assets to meet its needs while it finds some spending cut other than military pay checks.

All of these players know that default is unthinkable, and that just before the Congress recesses in early August, which is when the Treasury runs out of cash, President Obama will declare himself a born-again deficit cutter, and Speaker Boehner will drag enough of his Tea Partiers to a table that includes among its dishes some “revenue enhancements” to sign a deal. Both sides will claim victory, but there will be only one winner: the president. He will claim that he is the man who developed the compromise that makes government work.

Promises to identify specific spending cuts and tax reforms will be made, and procedures agreed upon that will seem to make all parties keep those promises. Since no Congress can bind its successor, this is really a bit of huffing and puffing that will not bring the deficit down.

Meanwhile, the president will try to make it seem that he is trying to do something about high gasoline prices, although there is nothing he can do in the short run, and about which he can do little in the longer-run except allow the development of domestic resources, which he is unprepared to do. He is proposing to strip the profit-drenched oil companies of some of their tax advantages, worth an estimated $21 billion over ten years, and use the money to fund more of the wind and solar energy facilities that are too uneconomic to attract private capital. The Republicans say that would be foolish as it would increase oil companies’ costs and reduce their incentives to look for and produce more oil. The shrewder Democrats in the Senate have a combination that might attract Republican support: they would remove the tax advantages from the five largest oil companies, and use the extra revenue to reduce the deficit. That puts Republicans in the position of defending special advantages for an unpopular industry and passing on an opportunity to cut the deficit they have said is reducing the nation to penury. The Democrats don’t expect this latest ploy to pass the Republican-controlled House, or to survive a filibuster in the Senate. But it makes for favorable press.

All of which is why it is such a relief to get out of town, at least for a while, and to go where real people deal with real problems, and are accountable for those dealings. Phoenix, Arizona, with temperatures already close to 100°F, has its problems. It is swamped with illegal immigrants, and because it has gone to court to assert its right to attempt to stem the tide that the federal government cannot or will not, has become a hate figure among liberal politicians in Washington who have managed to shield themselves from contact with the problems created by illegal immigrants, most of whom merely want to work, but some of whom overburden the education, health care, and prison systems. Indeed, most politicians come into contact with immigrants, legal or otherwise, only when they employ them to mow their lawns and clean their pools.

Immigration isn’t Phoenix’s only problem. It is at the epicenter of the housing crisis. Prices have fallen by 11 percent in the past year, and by about one-third since 2008. Foreclosures are rampant, the inventory of unsold houses high. This, in a state heavily dependent on the construction industry and the desire of the so-called Snow Birds—mostly older folks seeking escape from the frigid weather of the North—to set up house in warmer—at some times of year much warmer—Arizona. The recession has clipped the Snow Birds’ wings: unable to sell their ice-covered homes, they can’t come to Arizona in the same numbers as in the past. The population growth rate has declined from a pre-financial collapse level of about 3.5 percent to about 0.1 percent, according to data gathered by the local electric utility.

All of which is a perfect prescription for gloom. Except that it isn’t. Instead, the justly famed American energy, self-reliance, and resilience comes into play. Terry Roman, a partner in Snell & Wilmer, the largest law firm in the state (and a long-time client) tells me that until recently bankruptcy filings by property developers and others resulted in the liquidation of businesses. Now, more of those filings aim at reorganizing the affected businesses so they can continue to function. Ms. Roman, who makes no claim to having done a scientific sample, says businessmen here are “Lickin’ their wounds and movin’ on.” Ed Zito, Senior vice president at Alliance Bank of Arizona, related at a private dinner a tale of continued and accelerating recovery, aided by increases in lending by his bank.

It would be foolish to argue that Arizona’s problems are over. Not everyone with whom I spoke believes that a significant recovery will take hold before 2013. The federal government is challenging the state’s right to tackle the immigration problem, the inventory of unsold houses remains high, and house prices probably have not bottomed out. But few people here believe Obama’s spending or Federal Reserve Board chairman Ben Bernanke’s printing presses can solve their problems. They prefer a do-it-yourself approach.

This is not peculiar to Arizona. Neighboring  California, one of the worst governed states in America as a result of its dominance by teachers’ and other unions, is starting to recover because of the new hiring wave by the high-tech sector. In New York City, the lead is being taken by the highly competitive retail and hospitality industries, as the financial sector struggles with the residue of the financial panic and thousands of new rules and regulations. President Obama says that it is the private sector that must lead the way to a new era of prosperity. That is one belief the conservative voters of Arizona share with their president.

Some readers, I suspect, will find this impressionistic report not as much to their taste as my more data-laden efforts. Others, I hope, will find it a relief, as I did my short visit to what we call the American heartland, and East and West Coast liberals call flyover country, that blank space between New York City and Hollywood.  

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