My odd title reflects the centrality of the German and French
economies to the EuroZone financial crisis, which the UK published Economist Magazine considers similar to our fiscal crisis in an article entitled : The fiscal cliff deal: America’s European moment . I bring this up because their assessment is unfortunately close to my last post.
The
article discusses 3 key parallels in our situations : First is an
inability to get beyond patching things up; i.e., can-kicking is a
transatlantic sport; followed by the outsize influence of narrow
interest groups; and finally, the failure of politicians to be honest with
voters. A key quote :
" The automatic spending cuts
have merely been postponed for two months ...and the temporary fix
ignored America’s underlying fiscal problems. It did nothing to control
the unsustainable path of “entitlement” spending on pensions and
health care (the latter is on track to double as a share of GDP over
the next 25 years); nothing to rationalise America’s hideously complex
and distorting tax code, which includes more than $1 trillion of
deductions; and virtually nothing to close America’s big structural
budget deficit. (Putting up tax rates at the very top simply does not
raise much money.) Viewed through anything other than a two-month
prism, it was an abject failure."
The lack of
political honestly not only makes it hard to devise a realistic
solution to our nation's problems, it diminishes our ability to function in the
world :
"The saddest thing about this
week’s deal is how unaware Messrs Obama and Boehner seem to be of the
wider damage their petty partisanship is doing to their country.
National security is not just about the number of tanks or rockets you
have. As it has failed to deal with the single currency, Europe’s
standing has crumbled in the world. Why should developing countries
trust American leadership, when it seems incapable of solving anything
at home? ...(Obama) and Republican leaders are building Brussels on the Potomac."
That's a very sad statement considering how much further down to road to insolvency the Europeans are. We must deal with our entitlement-driven financial problems before we get to the same state. Perhaps we can do so in this year's continuing crises; but I'm more hopeful than confident. The first step is to get a lot more open and honest about our situation and the key factors - revenues, expenditures & entitlements , economic growth, deficits, debt, and demographics - that may drive a solution.
I'll try to address some of these in future posts, starting with some observations on political honesty or openness in the fiscal cliff deal.
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