12:00 AM, Jan 12, 2013 • By IRWIN M. STELZER
Worse, it may well be that the chances for compromise on taxes and spending are fading: The president says he won’t negotiate over raising the debt ceiling and that the rich must pay still more; Republicans say no new taxes. And the president has nominated Jacob Lew, a long-time Democratic party loyalist and a recognized expert on budget matters, to replace Tim Geithner as secretary of treasury. Republicans find Lew abrasive, unbending, and given to storming out of meetings in the face of opposition to his positions. According to a report in the Financial Times, “Republicans … say he is competent but doggedly ideological in a way that has damaged efforts to find common ground.” The possibility of policy peace in our time may be fading.
There are other things worth worrying about, not least what the world will look like when the president’s new foreign policy team of Chuck Hagel at the Pentagon and John Kerry at the State Department complete America’s retreat from its former responsibilities as maintainer in chief of world order.
But some of today’s worries are unfounded. Leading the parade of things that should not interfere with a good night’s sleep is a worry that America will default on its debt. Yes, by early March the government will no longer be able to borrow unless Congress agrees to raise the debt ceiling, which Republicans say they will not do unless the president cuts spending, which he will not do unless the Republicans raise taxes, which they will not do. Or so they say. That impasse might threaten the government’s ability to continue operating on its current scale, but even if the government is forced to live on current tax receipts, it will have enough cash to cover interest payments ten times over.
Nor need anyone worry that the government will be shut down if the Republicans refuse to renew current spending authorizations. They tried that when the Clintons occupied the White House, and paid dearly when an angry public registered its disapproval at the polls.
Finally, in my view, there is no need to worry that the economy will continue to stumble along or even fall into recession. The recoveries in the auto and housing market are accelerating. Technology and entrepreneurship are enabling America to tap massive new supplies of low-cost energy, attracting manufacturing facilities that once located elsewhere, “reshoring” to use the popular phrase.
On the political front, the president has indicated a willingness to consider some reining in of entitlement spending, perhaps by slowing the cost-of-living escalator, perhaps by means testing some benefits, while some Republicans have said they favor tax reform that would increase treasury receipts without raising income tax rates. If the president can deliver his left, and Republican leaders their right, the twain just might meet.
Perhaps most important is what Goldman Sachs’s Sharmin Mossavar-Rahmani of the firm’s investment strategy group says in her group’s just-released Outlook. The U.S. has enormous “structural advantages”: abundant natural and human resources, the rule of law, a “magnet for … attracting highly educated talent …dominance in academic excellence at the university level … [and] in research and development”. And much more.
So do worry if you must, but be selective.