One -- largely ironic -- cheer for the proposed debt ceiling deal

Posted By David Rothkopf Monday, August 1, 2011 - 10:50 AM Share

Celebrating the pending debt-ceiling deal is like a cancer patient in a burning house surrounded by hostile troops celebrating finding his empty wallet. It is not only a solution to a self-created, third-order problem; it is one that is not just inadequate to addressing the really serious challenges at hand; it has almost nothing to do with them.

While criticisms of the deal that note that it barely makes a dent in the debt and buys into spurious principles about how to actually balance the debt are perfectly fair, there are three much bigger problems associated with the proposed agreement.

The first, of course, is that it reveals what a hopeless mess the U.S. political system is. It does so via the process that got us here, the problem being addressed, and the deal's reliance on numerous tell-tale standards of Washington nonsense -- such as the very long-term nature of the cuts or the reliance on yet another committee to address what couldn't be resolved. This would be worrisome in any case. But it is made more troubling because of the other two major problems with the deal.

The second problem is that the deal is more than an agreement to minimal debt cuts, a convoluted process that is more likely to invite mischief among our political class than it is to make a sensible dent in our national debt, and a concession to extremists whose values will bankrupt much of the United States while handing over even more of the national patrimony to a super-empowered elite. It's that it also carries with it an invisible unspoken rider. The rider is that, since this process was so traumatic, the likelihood that any new spending program of size or new revenue program is off the table for the next 15 months or so … despite the fact that the staggering U.S. economy needs both.

(And for those who think the president has scored a "victory" by getting an extension of the debt ceiling through the end of 2012 -- think again. First, there will be plenty of other opportunities for further standoffs in the normal budget process. Secondly, what the president gave up in exchange for this is a process in which the failure to agree on a path forward guarantees nothing but cuts to the budget … not smart ones as much as mutual punitive ones. Thirdly, the deal probably is not big enough to avoid a downgrade.)

The third overarching problem is, however, the biggest by far. It is that this deal addresses a subset of a subset of a debt problem that is just a fraction of the challenge facing the United States right now. Indeed, most of our leaders and experts have yet to come to grips with the fact that this summer's crisis is not a stand-alone problem, nor is it an extension of the market shocks of 2007 and 2008; it is just the latest manifestation of what may well be the longest, most complex, least understood economic crisis in American history.

Call it The Great Stagnation. Or perhaps, call it the Great Decline. It began at almost the same time as the 9/11 attacks but is related more to the end of the boom of the 1990s and the bursting of the tech bubble that ended that decade. Since then, for the first time in U.S. history, we have not created a net new job. Since then, median incomes have fallen -- not just during bad times, but during periods of expansion as well. Since then, the top fifth of the population has grown richer and the bottom fifth poorer, whites dramatically richer than blacks and Hispanics. Since then, the houses that were the real repositories of most of the wealth of average Americans have not only fallen in value, but they have fallen in ways that many think mean they will not recover for years, if ever. Since then, U.S. debt has skyrocketed both in terms of what we acknowledge in our official debt numbers -- the $14-trillion-plus number you are familiar with -- and also in terms of the total debt that includes the costs of our federal official spending imbalances, the costs of our wars, and the underfunded retirement and health-care liabilities we have been building up. There are multiple estimates for the real debt number, but most credible ones start at around $50 trillion.

During this crisis we have seen wars and tax cuts of such scale that they should have created jobs and increases in income to average Americans, but they did not. Since the 2007-2008 phase of the crisis, banks and companies that were hit hard have not only recovered, but they have begun to flourish … and yet average Americans have not only not seen the benefits of that recovery but they have seen their circumstances get worse. Other countries have flourished and now seem more likely to be the engines of future growth. Our primary counterparts in the developed world -- in Japan and Europe -- have also suffered deep setbacks themselves.

In fact, it now seems possible that the United States may be in the midst of the kind of baffling, frustrating protracted slump that has beset Japan. And what is most worrying is that no one has an answer; no one has an idea about how the United States or Japan or some parts of Europe are likely to enjoy any kind of real substantial growth for at least the next several years.

Solving the problems of the Great Depression were comparatively easier because, during that depression, the United States possessed a variety of competitive advantages that were clear and because, ultimately, the public united around acceptance of the idea that the government had a critical role to play in tapping into those advantages. Of course, World War II ultimately ensured the U.S. recovery … but it is highly unlikely a similar stimulus is likely to emerge and no future war would have the same energizing impact on the U.S. economy. Quite the contrary.

We've got a debt ceiling deal. We found our empty wallet. Now, perhaps we can turn our attention to what is almost certainly the most daunting challenge in U.S. economic history.

Astrid Riecken/Getty Images

EXPLORE:FLASH POINTS, ECONOMICS, U.S. CONGRESS
 

MARKPEAR22

6:07 PM ET

August 1, 2011

my simple view is this less as a flattening as an unlopsiding

Why do we see the diffusion of wealth in the mid-20th century US as the status-quo and not the anomaly? The limited research I've seen supports the latter...

As regards the point of unity, it took a hell of a fight to get there. In Minnesota we had the Citizens Alliance and the Commission of Public Safety (that included titans of industry and government up to the governor) that tied pro-labor groups such as the non-partisan league and the IWW to the red menace. They fought organizers and until the depression, these pro-business groups were winning.

It seems like we're in a similar situation, but without a decimated global manufacturing capacity to fuel our growth.

 

KUNINO

9:21 PM ET

August 1, 2011

The only winners: Tea Party and Mr Norquist

Gloating from both, doubtless.

They continue serene in the deficient understanding that the central issue of modern government is that the US must never, ever raise a single tax -- no matter how much money the government needs to its job. Fancifully, the TP seems to argue that this dream becomes sensible when you can cut into sundry welfare government programs. But not even doing that fabulously expensive thing -- wage foreign wars -- justifies contributing some extra personal income to pay for it. Living on a governmental credit card is a better solution.

Interest payments on that George Bush credit card make a large part of the present debt. Families that live like this wind up in trouble, which is the likely outcome, soon, of the TP&N approach. The really serious decline of America.

If the current negotiation has avoided the default -- an unknown as I write -- think of this not as a victory, just as a warning of more, and more grievous, squabbling to come. And let's think of the Tea Party as already the third party in Congress, a parasitic one that has stolen the honorable Republican name to look after the personal and private interests of the very rich people who have Grover Norquist to launder their contributions supporting Tea Party candidates for election. Those elected that way see themselves as heroes. They're flunkies. And they're eating the Republican party.

 

JAGUARACER

2:00 AM ET

August 2, 2011

More confinced of the link with Chinese expansion

If you are looking for another connection/coincidence with the Great Stagnation, look to the grossly Chinese govt-manipulated lower Chinese yuan/Us Dollar exchange rate policy starting in 00s. They've taken a huge chunk of wealth from the world economy that was hidden for a couple years due to excessive leverage of American consumer (that has since come crashing down). This is basically a bribe to their peoples to not revolt. Only country in the world left that seems to have a healthy manufacturing export industry is Germany (though some may argue that it too has benefited from undervalued euro vs where a theoretical dem would be trading) with others benefiting just from commodities driven by Chinese manufacturing boom: Scandi/Canada/Australia, Brazil, Russia, etc, etc.

Definitely agree with the author, gotta be worried as an American. Regan-omics trickle down theory under Bush II clearly did not work and American population seems to be convinced Keynesian TARP also did not work. Personally, I think there's another link between massive public-sector layoffs this year (270k) and stubbornly high unemployment. Govt official trying to lower unemployment : "Really, unemployment is still high? Maybe we should fire some more govt workers? That'll help right?" Facepalm.

It's amazing how poorly American's know their history:
http://en.wikipedia.org/wiki/Great_depression#United_States
"In June 1937, the Roosevelt administration cut spending and increased taxation in an attempt to balance the federal budget.[83] The American economy then took a sharp downturn, lasting for 13 months through most of 1938. Industrial production fell almost 30 per cent within a few months and production of durable goods fell even faster. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938, rising from 5 million to more than 12 million in early 1938.[84] Manufacturing output fell by 37% from the 1937 peak and was back to 1934 levels."

 

AXELBROOK

10:32 AM ET

August 19, 2011

Consider...wait, is this for

Consider...wait, is this for homework? The language of the question sounds alot like homework. Damn it. Do your own freakin' homework. RIO The reading assignments your teacher is giving you cover alot more than just the homework and reading them is for your own good..

 

MADIE BRYNGA

2:49 AM ET

August 20, 2011

The debt-ceiling deal is nothing to celebrate

Ahead of votes on the debt-ceiling deal, a new debate is already taking shape: The impact of potential new cuts on national defense. The bipartisan debt deal outlines savings of $350 billion from the Pentagon’s base operating budget, savings that would be realized over 10 years. According to a White House fact sheet, proposed reductions would be “based on the outcome of a review of our missions, roles, and capabilities that will reflect the president’s commitment to protecting our national security.” As it happens, that kind of top-down review is already under way at the Pentagon - and the defense budget is already in line for a haircut. Earlier this year, the White House set a goal of $400 billion in trims to security spending over the next decade, and top bree olson launched a sweeping review of defense priorities, with the aim of identifying those cuts.

 

ALBERTOXX

5:00 PM ET

August 23, 2011

Only country in the world

Only country in the world left that seems to have a healthy manufacturing export industry is Germany (though some may argue that it too has vacationtips benefited from undervalued euro vs where a theoretical dem would be trading) with others benefiting just from commodities driven by Chinese manufacturing boom: Scandi/Canada/Australia, Brazil, Russia, etc, etc.

 

ELLSWORTH SPULICK

8:20 AM ET

August 30, 2011

One -- largely ironic -- cheer for the proposed debt ceiling dea

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David Rothkopf is the CEO and Editor-at-Large of Foreign Policy. His new book, "Power, Inc.: The Epic Rivalry Between Big Business and Government and the Reckoning that Lies Ahead" is due out from Farrar, Straus & Giroux on March 1.

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