Dysfunctional Government Reigns in Washington
Everyone knows that nature abhors a vacuum. The same has been said about power. But you don't need a degree in thermodynamics to prove it. The debt ceiling debate in Washington provided ample evidence of that truism.
President Obama's failure to provide leadership on the issue created a political vacuum that allowed hard Right Tea Party Republicans to seize control of the issue. What followed was an insane debate that not only pushed the nation, but also the global economy to the brink of a financial crisis. Of course, controlling government spending and the national debt are always important matters of public policy. But in this case, they were merely a pretext for what amounted to a purely partisan political power play.
In the end, the debate was needless, destructive to the economy, and won't solve the deficit problem. It also created more uncertainty for businesses both large and small. In short, there were no winners.
The debt ceiling is an archaic law to begin with. It was passed in 1917 as part of the Second Liberty Bond Act, which financed the nation's entry into World War I. Congress routinely raised it for decades until Newt Gingrich Republicans used it in 1995 to gain leverage in a budget showdown with President Clinton. The move hurt financial markets, caused two government shutdowns, and led to the worst public approval rating of Congress in history -- until now.
In the wake of the current debate, which brought the nation to the brink of default, this Congress is now more disliked than even the Gingrich Republican Congress. Four out of five people, or 82 percent of the American public, disapprove of the way Congress is doing its job, according to a New York Times/CBS News poll.
During President George W. Bush's two terms in office, Republicans raised the debt ceiling without a fuss for eight straight years, doubling the amount to $11.3 trillion from $5.9 trillion. Is it any wonder that 80 percent of those surveyed believe the current debate was more about gaining political advantage than doing what's best for the country? In addition, nearly three-quarters of those surveyed believe the debate harmed the image of the United States in the world.
Yet, Ray Keating, chief economist for the Small Business & Entrepreneurship Council, told Fox News that House Republicans and Tea Party members were clear winners, as were small businesses: "They didn't just increase the debt ceiling as we have in the past -- it is linked to what is actually going on the spending side," Keating said. "The president and the majority in the Senate had to move away from their position that tax increases had to be a part of the deal. That is a huge win for small business owners."
Cynthia Magnuson, a spokeswoman for the National Federation of Independent Business (NFIB), said preventing new taxes is extremely important to their members. But is it? Half of those surveyed in the New York Times/CBS News poll said the agreement should have included an increase in tax revenue, while only 44 percent opposed tax increases. What's more, a majority of Republicans (52 percent), Democrats (80 percent) and Independents (61 percent) now believe taxes should be raised on households that earn more than $250,000 a year.
At first glance it seems as if Wall Street, like conservative small business groups, should be trumpeting the debt ceiling deal. But Bill Gross, who heads Pacific Investment Management Co., also widely known as PIMCO, said the debate was nothing more than a symbol of "dysfunctional government."
Gross, whose company manages more than $1 trillion in assets, believes any long-term solution to the nation's debt crisis must include an increase in tax revenues in addition to other steps, such as creating a more efficient health care system, cutting benefits, and perhaps raising the retirement age to help trim Social Security liabilities. As things now stand, the debt deal, including future cuts by the so-called super committee, will reduce future deficits "at most by 0.5 percent," he told Bloomberg television.
"Partisanship has trumped good judgment, I don't know how else to say it," said Larry Nannis, chairman of the National Small Business Association.
The association this week released its mid-year economic report, and it showed an increasingly negative outlook on the U.S. economy among small business owners. Nearly half of those polled for the report (47 percent) said the economy is worse than six months ago, up from 29 percent from last December. The overwhelming majority (88 percent) expects a flat or recessionary economy in the coming year, and the number of small businesses expecting a recession more than doubled in the last six months.
Pimco's Gross shares that view. "We are at what we call a stall speed, in which corporate profits don't grow, jobs aren't created, and therefore the economy sinks," Gross said.
A strong majority (62 percent) of those surveyed in the Times poll said that creating jobs should be the nation's top priority. Yet, neither Congress nor the president seems to get it. They engaged in a needless debate over the debt ceiling that weakened an already flagging economy, called the creditworthiness of the United States into question for the first time in its 235-year history, and helped contribute to more than $1 trillion in stock market losses in the biggest sell-off since the 2008 financial crisis. If that's not a failure of leadership, what is?
