BackIt’s a political crisis, feel Americans
It’s a political crisis, feel Americans
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Complaining idly about politicians has long been one of the privileges of being American. “They’re all crooks and scoundrels" is a small-talk staple. Most Americans regarded the phrase as no more controversial than a complaint about the weather. That has changed. In just the past four weeks, casual whining about Washington has given way to growing alarm and a surge of anger. Americans are beginning to fear that their elected representatives are not merely an embarrassment or a convenient butt of jokes. They may in fact be doing lasting damage to the economy.
The change in attitude is striking in a country not given to Anna Hazare-type populism. In a mid-August Gallup poll, at least 60% of American adults surveyed said they did not approve of the job President Obama was doing. That’s the worst score of his presidency. Congress rated even lower, garnering approval of just 13%, tied with the lowest rating in Gallup’s history. A survey of investors by Decision Research found that 59% said they were at least moderately angry about the state of the economy, the same percentage as at the depth of the financial crisis two and half years ago.
The Thomson Reuters/University of Michigan index of consumer sentiment—which measures Americans’ optimism about the future—plunged 10 points from July to August (economists had expected a decline of one point). The measure now stands at a low last seen in May 1980 and consumers made it abundantly clear who they blamed. “Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role," wrote survey director Richard Curtin.
Americans’ anger started to boil during July’s congressional debate over whether to raise the amount of money that the US treasury could borrow. In the past, Congress routinely raised the so-called debt ceiling. After all, without the ability to borrow, the US government would be unable to pay the cost of activities that Congress itself had ordered. But right-wing Republicans saw in the debt-ceiling vote a chance to paint President Obama as a profligate spender addicted to government deficits. “Don’t give Obama a blank check!" was repeated on conservative radio and television shows. Several Republican members of Congress vowed to vote against raising the debt ceiling regardless of the consequences.
But Obama wasn’t the only one embarrassed. The spectacle of the US government held hostage by a few right-wing crackpots humiliated the entire country. Republicans wound up looking astonishingly reckless, the President pathetic and ineffectual. Veteran business writer Allan Sloan captures the outrage of many Americans following the debate. “I was on family leave in July… watching with increasing horror as market-illiterate know-nothings, abetted by the craven leaders of the Republican Party (from which I’m about to resign) and the unspeakable ineptness of Obama and his minions, brought our country to within an inch of defaulting on its debts."
The consequence of it all, so lightly regarded by Congressional radicals, was severe: the first-ever downgrade of US debt by a major credit rating agency. In explaining why it decided to reclassify US Treasury debt to AA+ , Standard & Poor’s (S&P) wrote that the issue wasn’t whether the US can afford to pay its debts; of course it can. The issue was whether Washington had the political will to pay. “The political brinkmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable... The statutory debt ceiling and threat of default have become political bargaining chips."
While S&P was careful not to blame one party, the Republicans probably did more harm to their reputation than to the President’s. The rating agency was clearly rattled by the party radicals’ public embrace of potential default. (Among those who claimed that it would be no big deal was presidential candidate Michele Bachmann.) In an interview after the downgrade, S&P senior director Joydeep Mukherji explained to the website Politico, “That a country even has such voices, albeit a minority, is something notable. This kind of rhetoric is not common amongst AAA sovereigns."
Still, the debate did succeed in changing the terms of the economic conversation. Prior to the debt ceiling fiasco, Washington was torn between Keynesian Democrats, who thought that the economy needed more government spending to get it out of the doldrums and austerian Republicans, who believed that the government’s first goal is to stop spending. Now, after a full month of Republican jibes over the size of the US debt, not even the Democrats dare talk about anything but cutting spending.
The inaction has only fed Americans’ cynicism about their elected leaders. The economy is “crying out" for government spending to stimulate hiring by businesses, writes Jared Bernstein, the Keynesian former economic adviser to vice-president Joe Biden, but the administration lacks faith to act, fearing that the “American people don’t believe the government can help on the jobs front... and Republicans in Congress will block any idea (the President) proposes anyway."
As a result, the loudest economic pronouncements are coming from Republicans campaigning for their party’s nomination for the 2012 presidential elections. Most are radical; some border on lunatic. The new front-runner, Texas governor Rick Perry, declared that he would consider it “almost treasonous" for Fed chairman Ben Bernanke to “print more money" in an attempt to stimulate the economy. He followed that bombshell up with a suggestion that the best thing for the economy would be a sudden and complete suspension of regulation. When asked to elaborate on these proposals, Perry said only that he “stood behind" the treason declaration.
There are shreds of hope. Bernanke’s speech to economic luminaries at Jackson Hole, Wyoming urged politicians to agree on sane fiscal policy that stimulated growth in the short run and put a credible deficit reduction plan in place for the future. Stocks rose in the speech’s aftermath, even though the chairman mentioned no plans to “print more money." The President, for his part, announced plans for a comprehensive job creation initiative, which would likely involve government spending on targeted job sectors. Unlike Bernanke, however, the President needs congressional approval for any fiscal stimulus and how he might get a spending package through the Republican-controlled Congress is unclear.
Americans, meanwhile, share the opinion expressed by Larry Swedroe, the research director of investment firm Birmingham Asset Management. “We don’t have a financial crisis or a liquidity crisis or even an economic crisis," he said. “We have a political crisis." In other words, Washington created the problem and Washington has to solve it—if it can. Richard Posner, a jurist who writes extensively on the economy, recently wrote an angry essay for the website The New Republic, in which the terms “incompetent," “reckless," “poor leadership," and “failures," pop up repeatedly in reference to both Republicans and Democrats. His conclusion captures the current sense of despair: “I don’t see a way out," he writes. “I hope someone else does."
Eric Schurenberg is financial editor at large, AARP The Magazine, and former editor of Money.
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