Hey there, time traveller!
This article was published 11/10/2012 (1473 days ago), so information in it may no longer be current.
Republican presidential candidate Mitt Romney brought the U.S. deficit problem into sharp focus last week when he rhetorically waved a budgetary axe in the direction of Big Bird, a cuddly character on the long-running children's television show Sesame Street. Under a Romney administration, he said, the U.S. government would not continue financing the Corporation for Public Broadcasting and Sesame Street with money borrowed from China - much though he personally loves Big Bird.
Politically the threat to Big Bird may do him more harm than good; plenty of Americans -- even the ones who want low taxes and a balanced budget -- may not want to hurt the beloved Sesame Street characters they watched as children. But Canada -- and the rest of the industrial nations -- needs the U.S. government to bring its taxing and its spending into better balance. A great many political equivalents of Big Bird may have to be axed along the way to that goal.
The deficit problem was presented in stark terms in December 2010 by the National Commission on Fiscal Responsibility and Reform, a panel of Democrats and Republicans appointed by President Barack Obama. Federal spending stands at 24 per cent of gross domestic product while federal taxes bring in 15 per cent of GDP. The government borrows the rest -- nine per cent of GDP. The government's debts and the associated interest payments are therefore rising at a rate that cannot be sustained much longer.
The commission offered a 20-year plan to bring revenue and expense into balance at about 21 per cent of GDP. So many elected officials and lobby groups found something they didn't like in the plan -- if it isn't Big Bird, it's something else -- that it has lain more or less dormant since its publication.
Political attention shifted to the so-called fiscal cliff -- the abrupt tax increases and spending cuts that, as things stand, would take effect at the start of 2013, perhaps triggering a recession, unless Congress and the president agree on last-minute measures to avert the crisis. Mr. Obama and the present Congress have a poor record of joint action on public finance. They typically defer problems a few months and then struggle once more on the edge of national catastrophe. Since they cannot agree on a plan for next year, what hope is there they would agree on a 20-year plan?
But the longer the problem is evaded, the weaker the United States will become, politically and economically. Canadians need a U.S. government that is not hopelessly in debt to China or to any lender, that is able to finance health, education and social programs for its people and is able to lead the defence of the western countries.
The Nov. 6 election may advance the U.S. toward an agreed fiscal plan. It may put one party or the other in charge of both Congress and the White House, and so relax the deadlock among branches of government. It may throw a scare into both parties so that they feel a need to work better together. At the very least it may ease the pressure of an imminent election and allow elected officials to lengthen the time horizon of their calculations.
In the U.S. electoral system, however, incumbents are extremely tough to defeat. The new presidential term is likely to be a lot like the term now finishing, dominated by short-term calculations and an endless war of nerves between the cutters and the spenders. Eventually, no doubt, the U.S. government will once again step away from actual insolvency. But since no one in the U.S. political system has to solve the whole deficit problem today or this week or next year, it will probably not be solved. Canadians can hope for an election result that gives someone the power to begin restoring U.S. public finance, but they should not count on it. Big Bird is probably safe, even if U.S. financial security is not.