Whether Obama or Romney, winner faces same fiscal abyss
Unless America's next president succeeds in effecting change, budget disagreements will continue, the political paralysis will deepen, and America's credit rating will once again be in danger and not only in the economic sphere.
America's next president will have little time to celebrate: In less than two months, the United States is liable to face a national emergency that will undermine its economy, weaken its army, hurt its citizens and deepen the global recession. The expected crisis, known as the "fiscal cliff," has barely been mentioned in the campaign, mainly because no one really has any idea how to deal with it. But the president's first and most urgent task will be to prevent the United States from falling off this cliff into the abyss.
The cliff in question is a "perfect storm" of measures obligated by law that will deal a hatchet blow to the American economy. The string of tax breaks that will automatically be canceled on January 1, together with the spending cuts that will automatically take effect, are meant to reduce the budget deficit. But they are also expected to cost the American economy some $600 billion, lower gross national product by 4 percent, drive the unemployment rate up by a full percentage point and return America to the depths of recession from which it was beginning to emerge in recent months. Combined with the additional expenditures stemming from President Barack Obama's healthcare law, every American family is expected to see its annual income fall by an average of $3,500.
The economic background to the current crisis, of course, is the crisis of 2008, the economic stimuli the administration administered in an effort to emerge from it, and America's swollen debt, which is once again approaching the legal limit of $16.4 trillion. Nevertheless, the crisis that is looming now stems from other factors entirely: the ideological divisions between the two major parties, the political polarization that prevents them from cooperating, Obama's failure to create a dialogue with the Republican majority in Congress and the determination to undermine and weaken the president even if America as a whole pays the price.
The American economy needs an economic "package deal" whose core elements are Republicans' consent to raise taxes on high earners and Democrats' consent to cut federal programs dear to their hearts. These are painful ideological compromises that can be expected to spark opposition from the conservative wing of the Republican Party and the liberal wing of the Democratic Party. President Bill Clinton succeeded in reaching such a deal 15 years ago with the speaker of the House at that time, Republican Newt Gingrich. But those were different men and different times. The ideological divide was still bridgeable, and the mutual resentment was still controllable.
The partisan split in Congress, where Democrats control the Senate and Republicans control the House of Representatives a divide that, as of last night, was expected to continue for the next two years will obligate the next president to try to surmount the parties' gaping ideological divisions and deep mutual suspicions in order to craft a sensible plan to prevent the "fiscal cliff" from becoming a reality, or at least postpone it. If he succeeds, his term will open with a universal sigh of relief and an influx of billions of dollars from investment funds that have until now held back due to the elections and fear of the fiscal cliff. If, on the other hand, he fails, his term is likely to fall into disarray from which he will find it hard to ever emerge.
He could adopt the tactics of intimidation, mobilizing American public opinion to get behind him via nightmare scenarios of the government closing its doors because it has exhausted its credit, of unbearable cuts in every walk of life, from the national security budget to local schools, of a drop in the standard of living and a rise in unemployment. He would thereby confront congressional legislators with the bitter reality that has been swept under the carpet, by mutual consent, during the election campaign.
Alternatively, he could try to lay the groundwork for a new relationship between Democrats and Republicans, left and right, liberals and conservatives, that would enable compromises to be forged jointly, as was once the norm. But it could be that America has passed the point of no return that the ideological polarization is unbridgeable, that the extremist margins have taken over both major parties and the political center, where the president will seek to position himself, simply doesn't exist anymore. From the Republican Congress that went to the extreme of trying to impeach President Clinton because of his dubious love affair with Monica Lewinsky, through the liberal loathing for President George W. Bush, especially during his second term, to the scorched-earth policy of undermining the president at any price adopted by the Republican leadership of the outgoing House of Representatives, feelings of "togetherness" in Washington have vanished as if they never were.
"We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013," wrote Standard & Poor's in April 2011, a few months before its historic first downgrade of the federal government's credit rating. Unless the president succeeds in effecting change, the disagreements will continue, the political paralysis will deepen, and America's credit rating will once again be in danger and not only in the economic sphere.