Sunday, May 1, 2011

The US Economy at the Imperial Precipice

Some common sense about the US economy and the deficit - with some lessons drawn from Middle East history (Khedive Ismail and the sale of the Suez Canal; the 1956 Suez crisis), to boot - in this superb Time piece from Sebastian Mallaby.  He concludes:
It is not too late for the U.S. to get a grip on its debt — and to limit its vulnerability to foreign rivals. From his perch on the House Budget Committee, Ryan has already laid out his plan, involving aggressive restrictions on the future growth of health programs. Senate reformers, led by a bipartisan group known as the Gang of Six, favor a more mixed approach: drawing on the report of last year's widely praised presidential budget commission, the Senators would combine restrictions to health programs with other spending cuts and tax increases. President Obama, for his part, has proposed cutting $4 trillion from deficits over the next 12 years, though he has been vague on how he would do that. All sides agree that the deficit is a problem; they even agree on the rough size of the challenge. If they could hammer out a deal, the credit raters' warnings would soon be forgotten. In the end, the debt question is thoroughly political. Not fixing it will have huge political consequences: it will spell the decline of the superpower that has guaranteed the safety of international sea lanes, provided the world's reserve currency and supported causes from free trade to the battle against global diseases. By the same token, fixing the debt will require political courage — the courage to not just put forth a solution but also compromise with opponents.

Courage, of course, is not what our elected leaders always have. But the debt question, surely, should drive them to summon all they've got. Lawrence Summers, Barack Obama's chief economic adviser until recently, put the challenge in blunt terms. "America not meeting its debt obligation is like allowing a child with matches to sit in a room full of dynamite," he remarked. "I continue to find it close to inconceivable that elected policymakers would allow such a risk." Let's hope his former boss has heard him.

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