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Thursday, October 10, 2013
A state without the means of some change is without the means of its conservation.
— Edmund Burke
The stakes involved in the deepening contestation over the budget before Congress are unimaginably high. Several critical issues are at the root of the current crisis. We must ask hard questions of those responsible for placing the country on such a perilous path, one that is capable of leading to a terrible economic abyss.
In recent years, conformity has emerged around a radical arm of the Republican platform called the tea party. The tea party’s roots go deeper in American politics than many realize. Its recent success is due in large part to the culmination of some disturbing trends in the U.S. economy. Most important among those trends is increasing inequality of many kinds, especially in income and earning potential. Also significant is access to affordable health care. Such inequalities are especially evident in Southwest Virginia.
In contrast to Senate Republicans, tea party Republicans’ insistence that budget negotiations be linked to a postponement of the Patient Protection and Affordable Care Act proceeds by way of a disinformation campaign about what the law is designed to achieve. It also obscures a stubborn reality — why so many citizens in this country lack access to affordable health insurance. Obamacare is by far the most important measure the government has taken in decades to redress growing inequality in America.
As damaging as the government shutdown is to the economy, it pales in comparison to the potentially disastrous economic consequences if the U.S. defaults on its debt obligations next week. If the U.S. defaults on its debt, we will send a clear signal that the U.S. is no longer a reliable economic partner in ensuring stability and predictability in the world economy, nor a safe haven for capital investment. As a result, we will see massive capital flight, much higher interest rates, rising inflation and certainly a crippling economic recession. This in turn would lead to a slowdown in economic growth throughout the world. All of this would promote unemployment and joblessness — the opposite of what the tea party appears to advocate.
Too few commentators have explained that the Affordable Care Act profoundly concerns equity and justice. In this vast country of ours, one still hopes that all citizens are capable of sharing responsibility, that everyone would do his part to improve the lives of the less fortunate among us. (Otherwise, why have a country?)
Important though these concerns are, efficiency and trust are of equal importance. Simply put, it is inefficient for the U.S. economy that so many people are uninsured and suffer devastating health consequences as a result. The U.S. has a grossly inefficient and expensive health delivery system that is devastating to many, especially those who are being manipulated to oppose this legislation (from which they stand to gain). Obamacare changes this — it will bring everyone into the health insurance marketplace, and it will increase our economy’s competitive metabolism by leaps and bounds as a result. An economy with as many poor and sick people as in the U.S. today simply cannot benefit from sustained economic growth. It cannot achieve even modest productivity gains, the true engine of growth and the only means by which living standards can rise.
Because the nation’s debt is so often invoked in discussions of spending on health care, let us consider the matter in context. The U.S. national debt currently stands at about 98 percent of gross domestic product (projected to be $16 trillion). A lot of people set their hair on fire about this fact. They claim it’s unsustainable. By way of comparison, Japan’s debt is currently 230 percent of its GDP. Germany’s stands at 80 percent. The U.S.’s debt after World War II was around 120 percent of GDP, and the period from 1947 to 1973 saw the longest period of sustained, high growth in our history. How could that be?
Here’s how. A country goes into debt to make critical investments to bring about massive returns later on — returns that will position the country to compete in a growing global marketplace. Countries make investments in such public goods as education, infrastructure, research and development, and improving the lives of those who stand no chance of seizing the opportunities that should be available to everyone. Returns on public investments are thus profoundly at stake when it comes to how a country uses debt. And with interest rates at historic lows, why wouldn’t we be investing in the country’s future ability to grow?
Global investors regard countries’ debt as an important form of currency that is traded — bought and sold — in international markets. Russia and South Africa recently auctioned off government bonds and got lots of takers — lots of people willing to buy shares of their governments’ debts at between 5 percent and 7 percent rates of return. The U.S. offers far lower yields because so many investors across the globe want to buy our government bonds. That could suddenly end next week if investors lose confidence in our government’s ability to resolve the budget standoff.
Trust, much like confidence, is something you don’t realize you have until it’s gone. This is especially true when it comes to international financial flows. The trust the U.S. has built up in international markets since before World War II is not the result of God or accident. On the contrary, it accrued over decades as the U.S. economy expanded and productivity gains were realized across many sectors of the economy. Both have slowed considerably as our economy became less efficient and poorly equipped to adapt to forces both domestic and international.
Remarkably, the world still trusts the fundamentals of the U.S. economy. Are we willing to throw all of that away for such utterly counterproductive reasons? Beholden to the tactics of a radical fringe of their party, House Republicans appear eager to erode domestic trust in the fairness of our society as well as foreign trust in U.S. capacities for world economic leadership. What they hope to gain ignores what the U.S. will lose. Nothing less is at stake in the current constitutional and political crisis.
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