US budget battle is a playground fight with no winners

The US budget battle is like a playground fight between Democrats and Republicans - and with, apparently, no adult around to break it up

PUBLISHED : Wednesday, 06 March, 2013, 12:00am
UPDATED : Wednesday, 06 March, 2013, 5:05am

Where is the adult in US politics?

Alice Rivlin, the former vice-chairman of the US Federal Reserve, hit the nail on the head when she compared the struggle over US budget cuts to a playground fight by schoolchildren.

But while right, she is also dreadfully wrong, because there is no sign that the unruly brats are going to stop fighting any time soon. That is bad news for the world economy, but it also signals the beginning of the end of the US economic imperium of the world.

If the American executive branch, meaning President Barack Obama, and Congress cannot agree on a relatively simple thing like the budget, what hope is there of US leadership on important matters? The fall in US growth will also have a cascading, damaging impact on the rest of the world and growth, job and trade prospects.

Obama signed the order for an initial US$85 billion of cuts to government spending under the so-called sequester programme. He warned that Americans face the loss of up to 750,000 jobs along with a 0.5 per cent cut in economic growth, which will cause a "ripple effect" of pain, especially among the US middle classes.

"Businesses will suffer because customers will have less money to spend. These cuts are not smart," the president said.

"Sequester" is an ugly word for an even uglier, stupid programme. That is because it will not only cause widespread and increasing pain, but it does little to solve the underlying problems the US government faces of getting its financial house in order.

The US defence budget will take the biggest single hit, with cuts of US$40 billion, or 9 per cent of total spending by September. But all government departments, from air traffic control to national parks, will have to cut their budgets by about 5 per cent. Medicaid and basic welfare services alone will be exempted. Sequestration will involve US$1 trillion in forced cuts between now and 2023.

The cuts come on top of US$1.5 trillion that Obama and Congress agreed in 2011 plus US$700 billion from the deal over ending the George W Bush-era tax cuts for the super-rich and another US$700 billion that will come from reduced interest on the smaller debt.

This means - hey presto - that the total savings will already be close to US$4 trillion, which is the commonly touted figure of cuts needed to stabilise US debt.

But sequestration was intended to be the ultimate weapon that would force the two sides to work out a compromise, so it would never come into force. It involves forced and across-the-board cuts that take little account of what is wasteful and what is healthy spending. Economists say the cuts will take a heavy toll on growth, and damage job creation.

Sequestration also does nothing to curb the sprawling growth in the United States' entitlement programmes on social security, welfare, Medicare and Medicaid, which risk running out of control with the country's rapidly ageing population.

Republicans say that these programmes are the weeds that must be cut down. Democrats want a mixture of entitlement cuts and higher taxes on the rich, who have gobbled up almost the lion's share of recent rises in economic growth.

Rivlin's comments were sensible. "Parents and preschool teachers know what to do when kids are fighting," she wrote in an opinion note for the Brookings Institution.

"First, halt the damage. Then, stop the blaming: it does not matter right now who hit whom first. Then, propose a constructive project, 'help me clear the plates or rake the leaves', that both sides can turn to right away. Usually, peace is restored and the kids work together."

The trouble is that there is no adult in the room who can take charge. If this were a struggle between Republicans and Democrats in Congress, then the president might be able to step in as the voice of the nation.

But Obama has been at the heart of this playground squabble from the start. Bob Woodward's book The Price of Politics portrays in depressing day-to-day and blow-by-blow detail how the struggle has gone on from just before Obama's initial inauguration in 2009.

The vicious and, at times, visceral personal edge to some of the politicking as detailed by Woodward should make Americans worry about who might emerge in the role of Rivlin's adult to restore sense and a sense of national compromise.

Evidently, Obama's commanding re-election and the election rebuff to the tea party wing of the Republican Party have done nothing to assert his authority as the wise adult of the country.

As sequestration started, the squabbling and name calling continued.

Obama squarely blamed the Republicans for their steadfast opposition to taxes on the rich, claiming that sequestration was not smart and what the US needs is "a balanced approach: one that combines smart spending cuts with entitlement reform and changes to our tax code that make it more fair for families and businesses without raising anyone's tax rates."

Rivlin suggested that "the public must take overt the role of the adult in charge". But that is easier said than done, and shows the limits of US democracy. After all, Obama has the authority of his re-election, and so do the members of the Congress.

The playground fights are continuing with new vigour. Congress has until March 27 to reach agreement on a budget for this year, or the federal government will shut down. After that, there is the prospect of battle to raise the federal debt ceiling, which was one of the original reasons for the playground fight.