Opinion

Nicholas Wapshott

The end of budget scare politics

Nicholas Wapshott
Dec 23, 2013 15:57 UTC

“Are you kidding me!” The cry of anguished disbelief from House Speaker John Boehner has brought down the curtain on a five-year-long battle over public debt that will not be lifted until the presidential election of November 2016.

There may be scuffles and there will be a good deal of wailing and gnashing of teeth, but members of the Republican leadership have concluded their attempts to pay down the massive federal government borrowing will be put on hold until they have control of the presidency and both houses of Congress.

This has been a long journey. America already owed a great deal when the financial freeze of 2008 sent the economy over a cliff. To save the nation — and the world — from penury not seen since the Great Depression 80 years before, George W. Bush’s Treasury team ignored the advice of many of their fiscally conservative supporters and proposed that $800 billion more be borrowed and spent without delay.

The incoming president, Barack Obama, took his predecessor’s advice and set out on a massive stimulus to keep the country he had inherited at work. It is one of the paradoxes of economics that to remain solvent, America had to go deeper in debt.

That lesson in how the world really spins came as a shock to many. To some it invoked anger. While ordinary Americans watched in horror as their homes became less valuable than the mortgages they were paying off, and as they tried to pay down their personal debt because they feared for their jobs, the thought of someone in Washington running up the tab on the people’s behalf caused fear that soon turned to anger.

The twisted politics of enforced economic pain

Nicholas Wapshott
Nov 25, 2013 16:16 UTC

By the end of the year, American taxpayers will no longer be part owners of General Motors. That is good news all around. Nationalization of a private company rarely makes economic sense. Even for red-blooded socialists, the ownership of the means of production has long been an empty threat, a totemic cul de sac that for years led socialism down the wrong path. Regulation is a far better way to ensure an industry works for the public good.

The federal government is not best-suited to administer a private industry. The emergency that once threatened American motor manufacturing has passed. State intervention has forced much-needed restructuring into a hidebound business riddled with grandfathered practices and anachronistic benefits. Intervention avoided the deleterious knock-on effects of the collapse of a major domestic industry, helped the external balance of payments, and saved thousands of skilled jobs in good time.

The return of GM to wholly private hands will no doubt set off hand-wringing from those who would have preferred GM to go properly bust during the financial panic of 2008, then restructure itself without state help. Those who opposed Steven Rattner’s motor rescue argue that government intervention to prevent a company from going broke interferes in a timeless process of rebirth as natural as the change of the seasons.

Here’s the path around the fiscal cliff

Nicholas Wapshott
Dec 3, 2012 18:40 UTC

The “fiscal cliff” talks offer a chance to rebalance the American economy so that the long years of living beyond our means — spending too much and raising too little, paid for by borrowing from the Chinese – will be brought to an end in an orderly fashion. As we have seen from the pitched battle between the White House and the Republican House leadership, finding the right balance between tax increases and spending cuts is not easy.

The guiding principle for both sides, however, should be primum nil nocere: First, do no harm. Having survived the worst financial crash in 80 years, the United States should do nothing to put the fragile recovery at risk. Since the turmoil of 2008, economic growth remains positive but feeble, which is more than you can say for comparable economies, such as the eurozone and Britain, that have battened down the hatches and nosedived into slump. The 17 eurozone countries are deep in recession with joblessness at more than 11 per cent; last quarter the U.K. briefly emerged from a double-dip recession of its own making but is expected to enter a triple-dip recession by the end of the year.

If we get the fiscal cliff bargain wrong–too-large tax increases combined with too-deep, too-early cuts in public spending–we risk tipping the economy back into the painful recession we have just escaped. In Washington, the trade-ff between tax and spending is portrayed as a quid pro quo, with Democrats demanding tax cuts for everyone except high earners and Republicans pressing for deep cuts in Medicare but not defense. The politicians have badly framed the argument. Think of tax and spending — if you will excuse the battered simile — as the knobs on an Etch-A-Sketch. To draw a perfect circle entails turning both knobs together at exactly the right rate.

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