Quantum Pranx

ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Crunch time for Obama, and the World

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by Anatole Kaletsky
From:
Times Online February 26

TODAY’S summit is crucial to policy and economic prospects in the US and the West.

YOU MAY NOT HAVE NOTICED, but today is a very important day for US politics, world economic prospects and even for the global balance of power between Western democracy and benign dictatorship along Chinese lines. Why? Because today marks either the beginning of the end of Barack Obama’s presidency, or the end of the beginning.

At ten a.m. US eastern time, he will host an all-day “summit”, broadcast live on nationwide TV, with his Republican congressional opponents and his wayward Democratic supporters, to try to establish some kind of political consensus on the top priority of his presidency – reform of the ruinously expensive US healthcare system. Medicine now absorbs 17 per cent of US national income, double the average in other advanced economies.

If nothing is done to change the US healthcare system, it can be stated with mathematical certainty that the US government and many leading US companies will be driven into bankruptcy, a fate that befell General Motors and Chrysler largely because of their inability to meet retired workers’ contractually guaranteed medical costs.

Today’s summit represents Mr Obama’s last chance to find a way forward, either by shaming some Republicans into supporting him or by embarrassing his own perennially divided Democratic Party into uniting around a single plan. If he is unable to do this, he will have almost no chance of passing any significant legislation on any other issue. In short, Mr Obama has staked his entire presidency on today’s summit. If you are not convinced, just listen to the President’s own radio broadcast last weekend: “What’s being tested in the healthcare summit is not just our ability to solve this one problem, but our ability to solve any problem.”

Consider what three years without effective government in Washington could mean, not only for America but for the entire Western world. The absence of effective US leadership will dash any hopes of progress in foreign policy, whether on issues such as energy, trade and climate change or on security threats such as Afghanistan, Iran and the Middle East.

But even more troubling would be the economic and financial effects. Gridlock over healthcare would imply similar stalemates on taxes, public spending, the budget, macro-economic stimulus and financial reform. As a result, an active response to any future financial crisis might become impossible. Even worse, any important action to control US government borrowing could be ruled out. If the financial markets seriously reached this conclusion, all the debates about government debt and public spending in Britain, Greece and other countries would be a waste of breath. A genuine loss of confidence in America’s fiscal outlook would create a financial crisis so horrific that actions by the British or European governments would be swept away like beach huts in a tsunami. And precisely this possibility must be taken seriously if Mr Obama fails to break the healthcare deadlock. The issue at the heart of America’s present political polarisation almost guarantees that government deficits will continue to widen if he cannot create some kind of consensus. For the deadlock over healthcare is just one instance of a more generalised paralysis on economic issues.

Right-wing Republicans will not vote to raise any taxes under any circumstances. Left-wing Democrats will not vote to cut any spending under any circumstances (apart from military spending, which the Republicans will never agree to). And abuse of parliamentary procedures means that almost no legislation can be passed in the US Senate by a majority of less than 60 per cent.

To make matters much worse, both sides claim to be acting out of profound democratic convictions, because their positions are supported by opinion polls. A clear majority of US voters oppose significant tax increases that affect middle-income households, and these are the only ones that could significantly improve the budgetary outlook.

An equally clear majority rejects any reduction in government spending on health and pension “entitlements”, which are the only cuts that could conceivably save enough to prevent government insolvency if big tax increases are permanently ruled out. And just to confirm the Alice in Wonderland character of US politics at present, another clear majority believes that the budget deficit is the gravest problem facing America and must be eliminated at once.

This contradictory polling brings us to the most alarming feature of all in politics today, not only in America but in most democratic countries: the way that cheap, ubiquitous and statistically accurate opinion polling has begun to subvert representative democracies and turn them into direct democracies, in which the views of “the voters” are considered more politically legitimate than those of the representatives they elect. In Britain and Europe, this shift has been clearest in military issues. Media commentators regularly assert, for example, that government decisions to send extra troops to Afghanistan are illegitimate because opinion polls show that a majority of voters oppose this war.

The dangers of direct democracy have been obvious to political thinkers since Plato and Aristotle. Most obvious is the absence of any mechanism to ensure consistency between majority decisions. Opinion polls will always show big majorities for lower taxes, higher public spending and balanced budgets. But polls will never say how demands can be reconciled.

In America today, healthcare is the focus of the pernicious direct-democracy movement. Polls show large majorities for reducing healthcare costs and extending coverage, but against benefit reductions or tax increases. Naturally, the public wants all of these objectives to be achieved while reducing government debt. Since any conceivable reform has to make some kind of compromise, polls show clear majorities in favour of almost all the individual measures in the Obama healthcare proposals, but opposition to the package as a whole.

The bad news is that US politics now seems to be trapped in this Lewis Carroll world. The good news is that if Mr Obama can find a way forward on healthcare, solutions to America’s other long-term problems – budget deficits, energy dependence, long-term demographic costs – would all be within reach.

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