The United States of America has revealed all its weaknesses and vulnerability in the past month of political bargaining and brinkmanship on a national plan for government debt reduction. While the deal at the eleventh hour between the Republican and Democratic parties may have brought the markets around the world relief, sending even Indian stock market indices up and softening the prices of gold and other commodities, these immediate responses hide enduring concerns, both within the US and globally, about the resilience of the US economy, the sagacity of its political leadership and the quality of its economic management. The $2.4-trillion spending cuts, spread over a ten-year period, to which US President Barack Obama has agreed would deflate an already faltering recovery. In a classic pre-Keynesian act, President Obama has surrendered to the domestic Ayatollahs of supply-side economics, now reincarnated as Tea Party enthusiasts in the land of coffee drinkers. That these spending cuts will add to the pressure on US defence expenditure is the least of global concerns. While such spending cuts would weaken the US globally, deep social divisions at home, exemplified by the unwillingness of the rich to bear an additional tax burden and the willingness of politicians to cut medicare and social security spending, reveal the weaknesses of the American society, polity and economy. Taken together with the course of the many wars that the US has been engaged in, and its inability to find a meaningful resolution to the problem of global imbalances, the recent political crisis in the US will only strengthen the view that the world has entered a “post-American” era. A nation at war with itself is unlikely to wage and win wars with others. That, in short, would be the dire conclusion that many may draw from this depressing and distressing game of brinkmanship.
There are, understandably, many ifs and buts to the Obama deal. Given the long time span of the implementation of spending cuts and tax increases, much would depend on the course of domestic politics. Equally, it would depend on the US economy’s ability to regain momentum. The US has shown time and again the ability to be creative and innovative. It could be argued that some of the withdrawal of demand as a result of the spending cuts would undo the damage inflicted by the second round of quantitative easing (QE2). To that extent, the reassurance offered to the markets has been welcomed. However, that will amount to taking a short-term view. Yes, in the short term the weekend deal may please the markets, taxpayers and government employees in the US. However, in the medium to long term, fatal weaknesses may come to haunt a politically beleaguered president and a socially divided nation.
If this very negative view of the debt deal has to be negated, the 12-member bipartisan congressional committee, comprising an equal number of Democrats and Republicans, must rise to the occasion and show how strength can lie in unity, despite the diversity. The fact remains that after weeks of pig-headedness, both the Republicans and the Democrats have finally agreed to a compromise. If this new spirit of compromise can result in more consensual decision making in an apparently deeply divided polity, the US can still hope to regain the ground that seems to be slipping every day from under its feet.
