The US Senate passed the measure lifting the debt ceiling, shortly after the House of Representatives did the same. The measure was passed on the proverbial eleventh hour, just days shy of the US defaulting on its debt. President Biden is expected to sign the measure into law shortly.
An unprecedented debt default would have been calamitous not only for the American economy but for the rest of the world as well. While the measure averts default, it failed to impress the global market. It was akin to a chore that just needed to get done even if it brings no solution to the US’s uncontrollable propensity to spend beyond its means – as well as the broken politics that is unable to prop up a sustained program for fiscal prudence.
In a word, the much-touted compromise that now allows the debt ceiling to be lifted offered only short-term relief to meet the most urgent peril: default. A default would have sent the US’s credit rating plunging through the floor and unhinging a global economy dependent on American financial stability.
This superficial compromise nevertheless assures us that moderation and reasonableness might still be possible in American politics. The measure passed both chambers because proportionally more Democrats than Republicans chose to support the compromise.
Much of what ails US politics is the strident and confrontational politics espoused by the right wing in the Republican party over the past so many years. The record shows that Republican partisans have moved further right than their Democratic counterparts have moved left. This produced what one analyst calls “asymmetrical polarization.”
On the whole, American political discourse has become more conservative. The rightward movement is driven by culture warriors fighting liberals on issues such as abortion and religious instruction in schools.
Among the core doctrines of the American conservatives is less government and therefore less taxation. They frown on the expansion of social welfare programs because this will imply more taxes. They frown on environmental protection because this would get in the way of business.
Lately, in the face of rapidly rising costs of military assistance to Ukraine, conservatives have opted for a more isolationist foreign policy, disengagement from global affairs and greater isolationism. This trend runs counter to the traditional preference of the Republican Party for global engagement, beginning from the policy of “benevolent assimilation” during President McKinley’s time over a century ago. This was the outward-looking policy that justified American colonization of the Philippines.
Isolationism, during the thirties, led Americans to advocate tolerating the Nazis if only to stay out of European wars. Today, if only to avoid the costs of supporting democracy and self-determination in Europe, as well as strengthening a rules-based global order, there is growing support among Americans to allow Putin to have his way in Ukraine. This is a revival of the attitude of appeasement that encouraged Hitler to do what he did.
Opposing additional taxation is a powerful gambit to win votes. The Republican Party, with its less cosmopolitan and more rural constituency among the “red states,” politically profit from the lure of lower taxes – or at least policies that will not induce increased taxation, whether this be about expanding social programs or funding Ukraine to fight Putin’s aggression.
A doctrinaire application of the preference for small government could produce disastrous results. It could lead to abdication of America’s responsibility to the world and to the democratic ideal.
In the case of a totally warped and poorly informed leader such as Donald Trump, a doctrinaire preference for “small government” could lead to a fiscal calamity. In the four years he was president, Trump managed to add $7 trillion to the US government debt load by cutting taxes on the rich corporations without significantly diminishing welfare programs. His political base found this satisfactory. The Republican Party during this time found no need to cap indebtedness.
The rightwing hardliners among the Republicans are not shy about their dislike for the compromise measure. They are, of course, using the debt ceiling as a means for bludgeoning Joe Biden. But there is basis for their complaint that the compromise measure does not solve the chronic budget deficit and America will continue sinking into debt.
The leftwing Democrats, for their part, complain that the compromise restricts America’s ability to invest in a more competitive future. They are unhappy over the cutbacks in programs that benefit the poor.
Listening to the grumblings at the extremes, it might seem this compromise measure is an unwanted baby. Perhaps it is. But it is something absolutely necessary to do to spare the economy from the imponderable consequences of an unprecedented debt crisis.
Now the US government can return to the financial markets to sell bonds and finance the deficit. They will be paying more for the money they borrow. The long sequence of increases in key interest rates will make borrowing costlier for everybody – including the US government.
Costlier bonds will further enlarge the debt – unless Washington is able to raise taxes and finance itself with less dependence on borrowing. That is a tall order. American politics militates against substantial improvement in American public revenues.
Soon enough American politicians will lock horns again over raising the debt ceiling even more. The propensity to spend using borrowed money is intact.
The Biden administration in considering abolishing the debt ceiling to avoid the politicization we just saw. But then there would be no check on the appetite for deficit spending.