x Abu Dhabi, UAESaturday 20 January 2018

Costs are high when politics and debt collide

The US debt-limit crisis reveals how deeply dysfunctional the political system has become. Some sober solutions were proposed last year, but politicians promptly buried them

The US political system is "dysfunctional and deranged," says businessman and pundit Howard Davidowitz. Many would agree with him. Anyone looking at the budget brinkmanship playing out in Washington this month would be hard-pressed to see things differently.

The increasingly frantic debt psychodrama - over vague 10-year spending cuts and perhaps modest tax increases - has been invested with all the importance of the classic Western-movie showdown. The combat between the US president, Democrat Barack Obama, and John Boehner, who as House speaker is the Republican spokesman, has become an ultimate battle from which only one gunslinger will come away unweakened; the other risks becoming a spent force.

What could be less appropriate, when what 330 million Americans so obviously need is some unity and a grand compromise as the first step on the long and arduous road back to budget-balance respectability?

Even as Europe wrestles with its own debt crisis, the rest of the world is watching the US. As the clock ticks down towards August 2, when the US government will be unable to pay its bills unless Congress acts, the whole global economy has been quivering in anxiety.

The showdown is good theatre, but miserable politics and worse economics. It is not just this senseless "crisis" that has led rating agencies to warn that US debt could soon be given a lower rating, a change which would drive up the government's borrowing costs. Rather, the real problem is the underlying morass: a $14.3 trillion (Dh52 trillion) debt, record deficits, a vast defence burden and "entitlement" programmes that pay out billions and will be very difficult to cut back.

It all calls for sober non-partisan common sense - which is exactly what Washington received last December, in the report of a Commission on Fiscal Responsibility and Reform. This hard-headed bipartisan group proposed 58 pages of specifics: closing tax loopholes, changing civil-service pension plans, capping discretionary spending and more. But politicians facing re-election buried it as "too controversial".

When politics and economics compete for attention, economies usually lose - and not only in the US. The European Union's leaders have been doing little better with their quite different debt crisis. What the two have in common is temporising politicians unwilling to grasp the nettle of real solutions. Europeans have at least learnt something about compromise.

It is chilling to realise that Washington's foolish high-stakes showdown is the best way the US can find to deal with its problems.