x Abu Dhabi, UAETuesday 25 July 2017

US government spat over the budget ignores the need for reform

A looming crisis has all America transfixed. The last time this happened was in 1995 under the then president Bill Clinton, when hard-charging Republicans under the then House leader Newt Gingrich brought government to a shuddering halt.

So it has come to this. The political squabbling over passing the US federal budget has reached such an impasse that a shutdown of the US government looms.

The sticking point is spending cuts. The Republicans want to slash and burn tens of billions of dollars in the name of fiscal prudence in the face of record-setting US deficits. Or, as the Republican House speaker John Boehner bluntly puts it: "We're broke."

Hang on, the Democrats say. Budget cutting is one thing but stripping away vital social services and laying off federal workers is hardly going to boost America's fragile economy, and will certainly only worsen the plight of the poor and the jobless.

The result is political deadlock on passing the budget. Republicans have now added so many cuts that the current plan will be the biggest roll-back of government spending programmes since the Second World War.

Meanwhile, Barack Obama, the president, has said he will veto the whole thing unless some of the more egregious slashes are removed.

If neither side blinks by Friday, then federal wage payments will start to wind down, some government offices will close, new passports will not be issued and other non-essential federal services will shut down.

The looming crisis has all America transfixed. The last time this happened was in 1995 under the then president Bill Clinton, when hard-charging Republicans under the then House leader Newt Gingrich brought government to a shuddering halt.

Then, as now, it seemed to be a clash of two distinct ideologies: one that said government helped people; the other that said government spent too much money and got in the way.

The parallels are eerie, which is a shame because in many ways the entire vicious fight over the budget is at best woefully misguided, and at worst a Potemkin debate of fake political theatre.

Voices as politically distinct as the liberal columnist Paul Krugman for The New York Times, and the conservative magazine The Economist, have pointed out that the part of the budget being argued about is so small as to make almost no different to America's projected US$1.65 trillion (Dh6.06tn) current deficit.

The entire budget debate concerns the area of spending called "non-defence discretionary spending", which makes up a mere 15 per cent of the total budget.

Two points need to be made. First, trimming here will not only make very little difference, it will also severely hurt vital services such as veterans' health, the running of the FBI, the prison system and drugs law enforcement.

Second, the percentage of GDP made up by non-defence discretionary spending is about 3.6 per cent, just as it was in 1963. In other words, in real terms it has not budged in more than four decades, which should be a sobering thought for those who claim trimming this area of the budget will stop "spiralling" government spending.

The real areas of the budget that have spun out of control lie in the "mandatory" bits of the budget, which are dictated by various laws and not up for annual review by Congress. This vast area of spending includes the main government programmes of social security, Medicare, Medicaid and agricultural subsidies.

It is here the US government is spending vast amounts of money and, especially in healthcare schemes, where waste and stupidity often seem the rule, not the exception. Nor is that simply a right-wing argument by those opposed to government aid in areas such as health care.

As Mr Krugman put it in a recent column, liberal Americans can argue for an efficient shake-up of mandatory spending on health care that would reflect their values and also ease the deficit by saving money.

"What would a serious approach to our fiscal problems involve?" he asked. "I can summarise it in seven words: health care; health care; health care; revenue." But no one wants to have that debate.

Republicans will never countenance raising taxes and indeed just dramatically worsened the deficit by giving hundreds of billions of dollars of tax breaks to the wealthiest Americans.

Meanwhile, both sides refuse to suggest a real reform of the biggest government social services out of a fear that it would make them unelectable with voters. Instead they pick a fight in the 15 per cent of the budget that does not really matter to them but nor does it matter much to actually reducing the country's debts.

In fact, Republicans and Democrats will even risk shutting the entire government down in order to avoid debating the real issues. It truly is the blind leading the blind.

 

business@thenational.ae