Americans traveled to work on Monday amidst a cruel irony: As they read in their morning newspapers about the suspense-laden budget deal that averted default, the Institute for Supply Management was announcing that in July, U.S. manufacturing output slumped to a two-year low.
That stark juxtaposition neatly illustrated the utter lack of integration in the now-completed negotiations between solving America’s very real fiscal challenges and addressing its equally real economic problems. In the battle for the public relations high ground, conservatives have seemingly convinced the public that the mere act of reducing government spending will improve economic growth when, if anything, the opposite is true.
To be sure, we should applaud the newly found religion around debt and deficits. Even as large a number as $2.1 trillion represents only the smallest down payment on America’s massive liabilities, which far exceed the now familiar figure of $14 trillion of debt and by reasonable math, amount to something on the order of $54 trillion when all the promises of the famed entitlements programs are toted up.
But at the same time, we can lament the many shortfalls in the last minute agreement, most importantly how little effort was made to align budget priorities with pressing needs. America’s economy is floundering and whatever conservatives may think, without the active involvement of government, the country is unlikely to suddenly bolt out of its current malaise.
That doesn’t mean maintaining – let alone increasing – deficits; neither politics nor prudent finance would permit that. What it does mean is allocating scarce dollars wisely. And here America’s leadership has fallen woefully short.
Take, as just one modest example, America’s crumbling infrastructure. The American Society of Civil Engineers estimated in 2009 that it would cost $2.2 trillion – coincidentally, almost exactly the size of the budget deal – just to bring bridges, roads and the like just back to 1988 levels.
Similar gaps exist in other, equally important areas of public investment, such as research and development. And yet, if all the newly agreed spending limits are put in place as scheduled, finding funds for any new initiatives, however meritorious, would appear highly unlikely. These critical areas could even find their budgets reduced.
Meanwhile, the negotiators failed to reach agreement on any changes in America’s social welfare programs, particularly the vast health program for the elderly. However meritorious Social Security and Medicare may be, this budget deal allows their rapidly escalating costs to crowd out other, critically important needs.
Short of trimming the entitlement programs, another source of badly needed funds to address American competitiveness would be more tax revenues. With tax rates in the U.S. at a two decade low, some scope should exist for raising taxes, particularly on the wealthy, whose incomes have soared.