Washington – The debt-ceiling fight generated enough hyperventilation and heartburn to replace a coal-fired power plant. The resulting product? It's starting to look kind of puny and irrelevant.
The political outcome was awful. But leaving politics aside for a moment, I'm confident that budget cuts totaling less than $1 trillion over 10 years will not meaningfully alter life as we know it. And since the legislation produces absolutely no new revenue, the impact on the national debt is minimal.
About $1.5 trillion in additional cuts would be imposed if the “super-committee,” a bipartisan congressional panel charged with reshaping our future through entitlement and tax reform, should reach an impasse. Hey, when has that ever happened? Still, with the exception of Pentagon spending, sacred cows are pretty much exempt from the automatic cuts. The impact on the debt would barely rise to underwhelming.
We've just spent months of bitter struggle to accomplish remarkably little. Meanwhile, most of the world's advanced economies, including ours, are mired in an economic “recovery” that is proceeding so slowly it feels as if we're moving backward.
Earth to Washington: Unemployment is stuck around 9 percent. Businesses aren't hiring because consumer demand, normally the great engine of the U.S. economy, is feeble. Americans are saving rather than spending because their most valuable assets — their homes — have not begun to regain the value they lost when the housing bubble went splat. Housing prices can't begin to recover until the glut of foreclosures is digested by what's left of the real estate market. Those foreclosed homes can't be bought by the unemployed.
Our elected officials could and should be talking about ways to break this vicious cycle before it drags us back into recession. Instead, they have focused on debt reduction — a laudable goal that is being pursued in the wrong way at the wrong moment.
Yes, we do have to reduce the debt. But the time to do that is when the economy is strong enough to withstand the blows of an austerity program. Healthy economic growth would shrink the debt problem over time, even without draconian belt-tightening. Producing this kind of growth should be the nation's top priority.
All the brinkmanship over a possible default did essentially nothing to discourage investors from buying Treasury bills; interest rates remain low, and many economists now say there would be no impact even if the ratings agencies were to downgrade the United States as an investment. This is because no one — except, perhaps, some tea party types and Rand Paul — believed it was possible that our government would actually fail to pay its obligations. Also, because there's no other safe harbor in which all that money can be stashed.
Our debt “crisis” is a piffle compared to what's happening in Europe, where dire concern about possible default has spread to Spain and Italy. Unlike Greece, these economic giants might be too big to bail out. Russian strongman Vladimir Putin keeps demanding a replacement for the dollar as the world's leading reserve currency. At the moment, I wouldn't place much of a bet on the euro.
In Washington, our leaders seem to have barely noticed this turmoil in one of the world's most important economic zones. They were busy in a philosophical debate over the difference between eliminating a “tax expenditure” and raising a tax. Hint: To the taxpayer, there's not really a difference at all.
Congress and the president should have been extending unemployment benefits and the payroll tax holiday — two measures that would help keep the economy moving forward, however slowly. And they should at least try to do more than crane their necks at the ongoing disaster in real estate.
President Obama and House Speaker John Boehner spent weeks trying — and failing — to come up with a package of budget cuts and revenue “enhancements” that would reduce the national debt by $4 trillion over the next decade. Want to see me do what Obama and Boehner couldn't?
I did nothing, and now I'm waiting for the Bush tax cuts to expire at the end of next year. If we just let all income tax rates revert to what they were during the era that should be called the Clinton Prosperity, a debt problem that now may seem overwhelming suddenly looks quite manageable. A little growth, a little tinkering with entitlements, and we're set for another quarter-century or so.
Problem solved. Now, let's do something that might actually benefit the country.