Basic Rule of Hyperpartisan Politics

Carolyn Lochhead, a San Francisco Chronicle reporter, yesterday did her usual good work in laying out the essential nugatory facts about the national finances.  Her piece is here at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/24/MN2B17PDPL.DTL&hw=lochhead&sn=002&sc=718 .  What I like about her analyses is that she's already up to date on the essential vocabulary of Medicare, Social Security, GDP, national debt, et cetera, and so doesn't have to rediscover these facts each time she writes about our looming catastrophes.  For example, Ms. Lochhead appreciates that when a government official, say with the General Accounting Office, refers to the "Social Security Trust Fund," he means "nothing."  That is, Trust Fund = Zero.  This simplifies one's understanding. Similarly, she comprehends the distinction between the external national debt (owed to China & Japan) and the internal national debt (owed to the various "Trust Funds.") With respect to the second category, a "moral imperative" only will force us to honor this debt to ourselves, which is to say, the promises are not worth the paper on which they're written (and stored in that famous file cabinet in West Virginia).

Plus Ms. Lochhead can call on the estimable Alan Auerbach at Berkeley's Haas School of Business, another dismal realist and highly quotable academic pundit.  Alan points out that frightening things like the downgrade of U.S. debt to less than AAA (as has already happened to Great Britain) is one of those things "that don't happen until they happen."  Which is to say, they seem like bad dreams until you wake up and find they're  the surrounding reality.  Our national debt to GDP ratio would already ban us from membership in the European Union, so some inconceivable things have already happened. The Big Kahuna, of course, is the potential loss of the dollar's world reserve currency status.  Apres ca, le deluge.

The leading edge of Carolyn's article is President Obama's current budget, which borrows a buck for every buck it spends, which is to say that we've reached the point where half the federal budget is done on credit.  By humble analogy one senses immediately that a household budget done on the same basis is a bankrupt situation, but macroeconomics, we're assured, are not the same as such lowly analogies, so it's all good. Increasingly, it is the external national debt that is being increased, that is, real money owed to real creditors and not debt we can erase by passing legislation stating, for example, that Social Security is no more.  The national debt, probably by not later than 2020, will stand at $20 trillion, and probably 2/3 of that will be real external debt.  Thus, the real external debt will = current GDP.  We've come a long way, baby.

It's hard to say what, if anything, we can do about any of this.  I suspect nothing.  Which brings me to my Basic Rule of Hyperpartisan Politics.  We have two political parties who take turns running things in our country. When one party is in power, the other party lusts for power and will resort to anything, even treason and actively working for the deterioration of the American standard of living, in order to regain power. Sometimes this is said openly; the official spokesman for the Republican Party, for example, Rush Limbaugh, stated candidly that he hoped Barack Obama's economic recovery would fail.  That way the Republicans could ascend to the throne and resume cutting taxes, exacerbating the debt problem, and increasing the military budget, so the Soviet Union will fall.  Certain ruts, they can't get out of.

A party wishing to retain power cannot afford to take any action, therefore, which risks short-term reversals.  In our everyday lives, we probably recognize there are times when one must retrench, reeducate ourselves, sacrifice, in order to move forward again. This is part of the natural cycle of life.  But such rationality is impossible in American national politics.  For example, the rotten-to-the-core banking system, overloaded with bad debt built on reckless gambling (itself enabled by repeal of the Glass-Steagal Act), could have been taken into receivership by the United States, its creditors and stockholders wiped out and only its depositors protected under FDIC rules.  Then, over time, a solid banking system built on actual regulation and legitimate business could have been rebuilt.  So, instead of lending or "investing" about $12 trillion in federal funding (money which we obviously don't have), we would have used the regulatory and police power of the American government to achieve a different system.

But that would have taken time - probably a lot of time.  A great deal of economic and financial dislocation would have occurred, including among the all-important Big Rich/Campaign Donor Class, and with the attention span (and comprehension) of John Q. Public, the Republicans would have had a field day with such a "responsible" approach. You can multiply examples. Rather than lending money to General Motors, this bankrupt company could be allowed to go bankrupt.  Michigan would revert over decades to seasonal farming country.  The money thrown away could have been invested in mass transportation, such as railroads run on alternative energy, technologies with real futures, rather than "shovel ready" projects such as repaving freeways and building more roads under the Stimulus Package.

On and on.  Nothing can be done unless the short-term fallout can be controlled.  The theory is that the long-term consequences (such as bankrutpcy of the country) can be disguised or deferred, but losing power is something that happens NOW. Yet some problems simply cannot be rationally solved without a period of loss and retrenchment, because you can't always continue to invest and support obsolescence while creating innovation.  There simply isn't enough money or human capital to go around.

Thus, let's face it.  The country cannot be fundamentally changed. We've passed that Rubicon. That is why "healthcare reform" has already fallen apart.  To fix healthcare, you have to get rid of the for-profit basis of the system. The party which does that will lose the financial support of Big Healthcare (Pharma, Insurance, Hospitals), confuse and rattle the general public, and thus be out on its ear.  

Relax, in other words, and enjoy the ride.  Quell thy reformist tendencies and watch, with fascination, as Nature, which always bats last, steps into the box.