Leaving Aside The Details Of The Unfolding Political Battles, America Is Fundamentally In Denial About The Severity Of Its Fiscal/Economic Predicament – President Obama Has No Plan – He Does Not Lead

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By Paolo von Schirach

January 4, 2013

WASHINGTON – Deep down all individuals engaged in self-destructive behavior know that they they should stop today and immediately embrace healthier life styles. The drug addict knows. The alcohol dependent person knows. The smoker knows. The obese knows. And yet in most cases knowledge alone is not enough. Bad habits are deeply rooted and resilient. And it is easy to invent reasons for making changes “later”.

I’ll make changes later

In large part this is because people are only vaguely aware of the long term, cumulative impact of their bad habits. As they do not fear them enough, they do not take action. Yes, if I keep smoking I may get cancer. But not necessarily. Yes, my obesity may lead to type two diabetes, but may be not in my case. And so on.

America just like a substance abuse patient

If we look at America, its conditions are pretty much the same: chronic self-destructive behavior and denial about its consequences. America is a country that for decades indulged in bad habits –over spending financed by more and more borrowing– while neglecting the good habits –investments in education, R&D and new enterprises.

As a result this indebted nation is now under performing. It is fiscally challenged –high annual deficits, enormous national debt– while its economy, even though not horrible, is mediocre. Growth at 2% is better than Europe’s; but lower than the historic 3% average. Unemployment at 7.8% is down from dramatic levels but still much higher than a historic norm around 4-5%.

We know what the problem is

All sane people knows that these conditions are bad and that they are trending down. More deficits mean larger debt; a tepid economy means erosion of our competitiveness in global markets. All experts know this. All reasonable policy-makers know this. All business leaders know this. And yet, just like the average Joe who knows he should stop drinking today, America looks at its conditions and says: “Yes, I should do something. But let me think about it”.

In essence, this is our predicament: bad behavior with no sense responsibility. Instead of taking action, denial and more denial. We know that the politics are horrible. But the politics are horrible because of denial; because different players developed their own rationalizations and favorite narratives as to the causes of this dangerous predicament. And so, lots of finger pointing and little serious action.

Obama missed a chance to lead

The Fiscal Cliff talks that just ended with a partial deal could have been an opportunity for a Grand Bargain. A freshly re-elected President Obama could have taken the lead and said to his Republican opponents in Congress:

“Let’s get together on this. This is about our Country’s future. Let’s set aside ideology and do the right thing. Yes, the rich should pay more into the system. This is fair. But we also recognize that long term entitlement spending is unsustainable. In order to make sure that the safety net will be there for those who really need it generations from now let’s reconfigure these programs. Yes, some people will pay more and get less. But the truly needy will be fine. We also have to find better ways to properly match our national security priorities and our sky high defense spending.

By the same token, let’s simplify our complicated and multi-layered tax system riddled with special treatments, exemptions and loopholes. Let’s make it simple, user friendly, fair and business friendly.

And finally let’s engage in a national all out effort to vastly improve public education standards in America. We all acknowledge that our future depends on how smart and innovative all our kids are going to be. Let’s give all of them the very best we can. This is a resourceful country. We do not lack intellectual capital. Let’s deploy it so the all children get the best education our collective brain power can provide”.

Petty quarrels about taxes

Imagine if President Obama had said this on the night of his re-election. He would be a hero and a real leader. But the President chose to turn this opportunity into a petty political battle about higher taxes for the rich. This easy populist remedy worked well with public opinion.

But the President knows better. It is totally disingenuous to say that our national predicament is mostly about the rich not paying their fair share of taxes. All experts and all policy-makers know that higher revenues, while not an insignificant contribution, would do very little to fix our fiscal problems, let alone our economy. Taxing the rich is all about political symbolism. It is not about serious policy-making.

More of the same

And now? Well, now expect more of the same. The President has not come out with a “Plan” about reforming taxes and spending while addressing American long term competitiveness. May be he thinks he does not need to. May be, just like the smoker who plans to quit but not just now, Obama is waiting for a better moment.

Slow moving crisis can be ignored

The tragedy in this situation is that we are not facing impending disaster. We are not about to go over another, bigger Cliff. We are just slowly sinking into feeble mediocrity of high debt and low growth. This deterioration is happening so slowly that most people can pretend it is not happening at all.

As a Nation, we are still in denial, and that is the real problem.

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