The Silver Lining in the U.S. Debt Downgrade

The Silver Lining

America, before FDR and the Great Depression, was a relatively conservative place, at least fiscally. As a response to the economic disaster he faced, President Roosevelt correctly started building government and building government programs, and the federal budget soared. To condense decades of history into a few sentences, what followed was World War II, which begat huge expenditures, the Marshall plan, the Cold War, the nuclear arms race, the huge demand for very expensive oil from the Middle East and the rest of the second half of the 20th century. And with only minor exceptions, after the New Deal, the federal government grew geometrically, and the federal budget increased proportionately.

There will be one lasting effect, and only one, of what happened in the last few days. Whatever else the conservative Republicans accomplished, however costly those accomplishments may be economically as well as politically, and however much their timing and tactics should be decried, something very important actually happened. The cycle of spending madness in Washington may well have been finally, and forever I think, broken. It is now PC to take the position that spending in Washington must be drastically curtailed, whether or not one believes that taxes should be increased. If you’ve ever had a bad fever that broke suddenly, you can understand this: the chills and ague always give way to a sweat, uncomfortable in itself but always, at least in retrospect, better than the illness that caused it.

I believe that Washington will never be the same after this week, and it will be different in a way that after some period of time—perhaps a very painful period of time—will be better for America and the rest of the world.

The simple analogy is really quite simple—after the Depression, America became a very rich and powerful country, and developed some very bad habits in the process. Just like a family: if it spends above its income when its income is strong, it becomes very hard to spend less when its prospects decline. We know intuitively what happens when we overspend, and the same thing happens to a country when it overspends. America’s days of salad in the 1920s turned to steak in the ’50s and caviar after that. We’re hardly poor; we’re still the richest country on earth—but we just can’t sustain the growth rate that we would need to afford the spending we do. We have to learn to live within our means.

Like you, I believe that the events of the last few weeks were outrageous and that both parties embarrassed themselves and the nation. We must stop screaming at each other and have an adult conversation which leads to a reasonable, balanced solution that includes both permanent spending cuts and fair and appropriate revenue increases.

Like you, I am uncertain as to where we go from here as a country and as an economy. It’s a very uncomfortable feeling. But sooner or later, I will be sleeping better at night, as should you, because whatever the costs of going cold turkey have been or will be, at least our children might finally be born addiction-free.

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