By Karl ReinerAmericans have suddenly become enamored with the U.S. national debt. Perhaps it is because it keeps climbing. Tax cuts, two wars and a colossal recession triggered by the collapse of the housing sector have all done their part to make it worse. Although Congress has raised the debt ceiling 39 times since 1980, it made the task complicated this time around. The Republicans in the House of Representatives decided federal budget deficit controls needed to be added to the bill raising the debt ceiling.
Being zealously set against tax increases, the Republicans demanded that the deficit reductions come solely from spending cuts. The deficit problem is a serious matter, yet it hard to understand why it was entangled with the debt ceiling requirement. The strident political posturing completely ignored the fact that many economists believe around 25% of any real deficit reduction solution is going to have to come from increased revenues.
The quirky political display may be another manifestation of the growing nihilistic desire in certain U.S. political circles to reduce or eliminate the functions of the state. This weird concept runs counter to what is really needed in this day and age. The country needs leadership that understands the need to couple a globalized capitalist economy with a government sector able to provide efficient social services. It is not a unique concept; it is widely accepted in other developed and developing countries.
We need to understand that there are consequences to living in a place where the state does too little. The recent housing sector debacle is prime example. Alan Greenspan, a champion of free markets and former Federal Reserve chairman, admitted he was shocked by the failure of rational self-interest to regulate risk-taking in the banking sector. America’s financial wizards defeated the diminished efforts of regulators by bundling suspect loans into securities that were sold to unsuspecting investors. Shoddy loans got pushed through structures such as collateralized debt obligations.
In the end, the banking sector elites suffered little for their excesses. Wall Street has recovered far better than the rest of the economy. Corporate profits are also recovering nicely while the labor market remains weak. The unemployment rate is stuck at over 9%. The once robust housing sector has been flattened. The U.S. home-ownership rate is in decline. It dropped from a high of 69.2% in 2004 to 65.9% in June 2011, the lowest rate of home-ownership since 1998.
Growing income inequality is a danger that could lead to a breakdown in social cohesion. The richest 1% of the population expanded their share of national income from 10% in the 1952- 1986 period to over 18% today. Since the current recession began, participation in the food stamp program has soared. It now serves nearly 45 million people, one in seven Americans. The uneven pace of recovery has resulted in the weakest labor market in over 35 years.
The disdain for government has been attributed by some analysts to the rise of the religious right and its influence on politics. Others see the media as playing a role. In the past, one of the functions of the media was to provide a bridge between the various communities. Today’s media no longer contributes to social cohesion because it stresses the differences between the views of groups. The various political factions have media outlets catering to reinforcing their specific views.
Some see the collapse of the Soviet Union as a major cause: it removed the outside threat that held a fractious American people together. Ours has become a jaded society with too many people believing they have no obligations. As Conservatives seek ways to dismantle government, they are undermining their own future.