The Battle of the Deficit Bulge
4:50 PM, Jul 29, 2011 • By IRWIN M. STELZER
Perhaps the scariest aspect of the current crisis is what it tells us about the state of political debate in America. The dollars involved are merely the proxies for the real issue: the role of government in our country in the 21st century.
President Obama and the Democrats believe that the role of the government must be increased even beyond the expanded level to which the president’s “transformative” agenda has brought it. They see an ageing population increasingly in need of government care, and a nation in need of a massive upgrading of its infrastructure. If that means higher taxes, so be it: hit what the president publicly calls “the millionaires and billionaires,” although he really means families earning more than $250,000 per year.
The Republicans see things differently. The country is reduced to rattling its begging bowl in China and elsewhere to pay for programs that become ever more costly as the president expands the reach of government. The productivity of the private sector is steadily eroded by regulations that give no weight to the need to create wealth and jobs, and taxes that sap initiative and risk-taking. So deregulate, cut taxes to stimulate growth, rein in spending, and reduce unemployment.
There’s more, but you get the idea. So far, the electorate has been of little help. A majority of Americans want spending and taxes cut, but their benefits left untouched. In the absence of the sort of leadership that Franklin D. Roosevelt, a Democratic icon, exerted to persuade Americans to provide aid to Britain in the early days of WWII, and that Ronald Reagan, a Republican icon, provided to bring down the Soviet Union, the electorate flounders. In 2012 the electorate will, it is hoped, provide the political class with a bit of guidance as to whether Americans want to follow Obama and continue to transform America into a European-style social democratic state, or choose a leader who will take it in a more historically American direction, with greater emphasis on the private sector and individual initiative.
To the “this-is-scarier-than-it-seems” side of the ledger add the possible cost of uncertainty. One minute we have a deal, the next we don’t makes businessmen rethink expansion plans. Add the uncertainty provided by the lesson of Lehman Brothers: the consequences of a financial mishap are often greater and more far-reaching than anyone predicts. Just ask Hank Paulson. With both the U.S. and the euroland countries struggling to pay their debts, the global financial system might just be too fragile to withstand another shock.
I lean to the less scary scenario, but with considerable uncertainty.