Behind the U.S. debt drama

Guyanese plugged into the U.S. media outlets that dominate our local TV programming were transfixed at the sight of the president of the United States and his Republican opponents locked in talks on their spending, which threatened to bring their government to a screeching halt. Disaster was averted at the last moment, and we can all breathe a bit easier. We use the editorial plural “we” advisedly, since the U.S. economy’s health is so crucial to global wellbeing.

But what were the issues behind the crisis? Right up there was the fact that the U.S. still has not recovered from the recession it plunged into in 2008, subsequent to the collapse of its banking and financial sector. That crisis spread into the real economy, where a ten per cent unemployment rate appears to have now become endemic.

Yet, most puzzling to a Guyanese audience, the leaders decided that the thing to do in order to raise the debt limit was to spend less money, making job creation all the more difficult.

What was going on? This was politics U.S. style, where the opposition had the votes and the wherewithal to force the president to toe their ideological line. The Republicans had made it clear for months that they would use the need to raise the debt ceiling as an instrument for extracting concessions from the Democratic president in the form of more cuts in federal programmes. Never mind that focusing on growth and jobs may be more urgent in the near term than cutting the deficit, even if such expenditures require borrowing. The Republicans were helped by Obama’s need to appear to be a fiscal centrist to woo voters for next year’s elections.

The problem therefore for the U.S. – and by extension the world’s economy – is that the U. S. remains unwilling to deal with the root causes of its national debt and deficit crises.

There is firstly the multi-trillion bailout packages that were extracted by the financiers on the argument that they were “too big to fail” when they crashed and burnt the economy.

There are, secondly, the mind-boggling costs of the wars and other military spending; and finally, the compulsion to tax the wealthy and to increase their exemptions. Some also believe that the escalating health care costs, inflated by the big operators, also have a significant role.

Rather than looking at the above excesses, several scapegoats have dominated the debates and the headlines.

These are basically the entitlement programs – Social Security, Medicare and Medicaid (offered up by Obama) – and social and human services discretionary programs such as health, education, housing, transportation, the environment, community development, etc. These are scapegoats because, unlike what the dogmatic Republicans are insisting, these are not the source of the rising debt and deficits.

In the last decade, the official budget of the Pentagon has doubled from $295 to $560 billion, but the real figures are far larger. The reason for this understatement is that the official Department of Defence budget excludes not only the costs of the wars in Iraq and Afghanistan, but also a number of other major cost items.

These include: budgets for the coast guard, the Department of Homeland Security, nuclear weapons, veterans’ programmes, most military retiree payments, interest payments on money borrowed to fund military programs in past years, and more.

If factored in, the total security/military-related budget items would amount to slightly more than $1.1 trillion, which absorbs about one-third of the entire 2011 federal budget of $3.4 trillion.

There are some politicians in Guyana that have adopted the line of the Republicans and would also cut back on social spending and dramatically reduce taxes while introducing pork-barrel constituency spending. This is demagoguery, and must be rejected.