Blue on Black

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So the world stands transfixed by this utterly gratuitous argument the US government is having over the debt ceiling legislation.  Now bear in mind how truly bizarre the parameters of this argument are.  What we're talking about is Congress refusing to pass a bill authorizing the Executive to make payments that are, in every single case, already authorized and appropriated by bills passed in Congress and signed by the President.  To put it in blunt terms, Congress is refusing to allow the Government to follow the legal orders of Congress.

And the damage is already done.  Oh, it can get worse - much worse.  But throughout the world, where governments and finance professionals are used to seeing and dealing with Sovereign Debt Crises that result quite naturally when a government no longer can raise the funds to pay its debts, those same observers stand dumbfounded as the US, with massive resources and no lack of funds prepares to voluntarily default on its obligations out of nothing more than political chaos.  The reason there haven't been greater consequences to this point is simply that nobody can truly believe that any nation, let alone the largest economy in the world, could possibly be that stupid.

Ostensibly, the argument is about deficit spending.  The Republicans have taken the position that we must address our long-term deficits NOW, or the results will be nothing short of cataclysmic.  However, the reason this is plainly disingenuous and manipulative is that they refuse to allow any increase in government revenues - revealing their actual agenda clearly, for all to see.  Tragically, the Democratic President, in the midst of a financial crisis, with double digit unemployment, zero inflation, crumbling infrastructure and a rising output gap, has decided for the most venal reasons of political expediency to adopt precisely the Republican frame.  Indeed, it has become apparent that he wants to make much deeper and more draconian cuts to US Government spending than even the Republicans in Congress are willing to specify, and is more than willing to exploit the Repbulican's salted earth campaign to transfer massive amounts of wealth from the poor and middle class to the wealthiest fraction of people and corporations to accomplish that goal.

OK.  So one way or another, Americans are going to see massive cuts in precisely the kind of spending that holds communities together.  From health and nutrition to education and infrastructure, these deep cuts ripple down from the Federal level to the States, and from there to the counties and municipalities, at each level taking their toll on the people, the very individuals who created the government to represent them in the first place.  The cuts seem inevitable, as does the unnecessary suffering as people are hungry, fire departments are slower to respond, children are incarcerated and bridges collapse.

But it is all just pointless and meaningless, which makes it even more the tragedy.  Why?  American government runs on money.  Not just campaign money, or lobbyist money.  The very act of governance has become exclusively about money - determining who gets it, and how much.  From the military, the FBI and the FAA down to local grants to build roads and bridges.  Reducing that flow of funds, with the concomitant reduction in recipients, will lead, necessarily to a reduction in governance.  Whether from Washington, the Statehouse or the City Council, power is exercised through the distribution of funds.  A deficit reduction bill isn't even a budget - it's just a set of guidelines as to how money will be distributed over a ten year window.  Laws can be changed, caps raised, restrictions abolished and special cases defended.  The next Congress, and the one after that, will respond to the demands of those portions of their constituency they deem important.  And when this round of cuts begin to bite, and bad things happen, people die and crime increases and victims of disaster are left to fend for themselves, when all the consequences, foreseen and utterly unanticipated, begin to manifest, there will be no hesitation among those in power to take the only action available, to appropriate funds.  As the old saying goes, when all you have is a hammer, everything looks like a nail.

The reason the US government depends on deficit spending is that Americans refuse to take a realistic approach to the cost of government services.  Make no mistake.  When people say they want to cut spending, they are most explicitly NOT saying they want to cut services.  They just don't want to pay for them.  So you find yourself in a situation where government revenues are less than 15% of GDP and government is spending 21% of GDP.  Neither of those numbers are "right" or "wrong" - whatever level of service the people demand should be delivered, and sufficient revenue should be collected in order to do so.

Ultimately, revenues will be raised and spending increased once again.  When the maintenance of personal and political power depends upon increasing spending, spending will be increased.  These things have always been cyclical, but with the most right-wing, corporate friendly government in recent history occupying all branches of government, the execution will be very extreme, and the volatility of the cycle very likely unprecedented...
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