THE AMERICAN Federal debt crisis eventually may claim many more victims than the Washington, D.C., Beltway pundits ever had thought possible. The most prominent casualty could be Pres. Barack Obama, who attempted, but failed, to distance himself from that embarrassing political fracas. The President could be joined by other tax-and-spend Democrats who still seem reluctant to acknowledge that there am limits to government deficit spending. In response to the debt imbroglio--which ended in the downgrade of the U.S. government's credit rating--the American stock market plummeted into a downward spiral that may signal another recession. In fact, the U.S. still has not recovered from the last recession, which nevertheless was declared to be over in 2039. Two years later, output has not returned to prerecession levels.
Since Obama took office, 2,400,000 (net) jobs have been lost and the nation remains at least 10,000,000 jobs short of full employment. The fraction of working-age adults who am employed is 58.2%, a 28-year low; the official unemployment rate continues to hover around 9.1%--significantly less than the much more comprehensive measure of unemployment (16%) that takes into account those who have withdrawn from the labor force as well as individuals reluctantly working part time. The current economic crisis is very much unlike most postwar recessions; those were characterized by a year or so of malaise followed by vigorous comebacks of above-average economic growth and surging employment rolls.
Paul Romer, who specializes in studying economic growth, terms this crisis "The Great Distress" and he expects it to last another five to 10 years--and Romer is an optimist. Plunging stock markets around the world indicate that there is widespread skepticism about the U.S.'s economic footing.
Economist Austan Goolsbee cautions that the U.S. cannot return to its flawed business model that depends on consumer debt-fueled spending and a real estate bubble that is made possible by the monetary policies of the Federal Reserve. Like most economics professors from the University of Chicago, Goolsbee has recommended an array of conservative remedies to shake the shackles of the recession--a recovery "fueled by business investment, by export growth, by innovation." This is an upbeat assessment that almost any economist could accept, but how do we get there from here, and why have our policymakers abandoned the strategy of encouraging private sector growth in favor of the Keynesian approach of pumping trillions of Federal dollars into the economy?
A member of the editorial staff of The Wall Street Journal, Joseph Rago contends that "the debt ceiling debate was never about the debt at all. It was about the terms on which the debate would continue." In other words, it was more about ideological bluster than economics.
For House majority leader Eric Cantor (R.-Va.), the "two different world views" that characterize today's American political landscape simply am too far apart for anything more than a wary armistice. Cantor claims that the "philosophical starling point" for liberal Democrats is that they "believe in a welfare state before they believe in capitalism. They promote economic programs of redistribution to close the gap of disparity between the classes. That's what they're about: redistributive politics; they am able to lake from those who create and give to those who don't." With these words, Cantor has characterized the ideological chasm separating the two partisan factions. It is not surprising that Obama and Cantor appear to dislike each other intensely. One telling exchange between the two was the taunting remark made by Obama shortly after his inauguration: "Elections have consequences and, Eric, I won."
What is there in Obama's beliefs that brought the U.S. to the brink of financial rain? His political past provides some clues. In 2007, a National Journal study revealed that Obama's Senate voting record was the most highly partisan of all senators and that he was even further left than Bernard Sanders (D. …