Analysis: The Courage Deficit

Brit Moller 19 July 2011

While America faces an upcoming deadline on August 2nd to raise its debt ceiling and thereby avert a financial default, Washington appears unwilling to place partisan politics aside.

At the moment, there is widespread agreement that the cost of America failing to meet its financial obligations would be catastrophic by almost every economic measure. The uncertainty such a message would send to investors means interest rates on federal debt would surely spike and, in the process, have the counter-productive effect of further inflaming the country’s debt.

With this broad consensus in mind, one might rightly ask, “So, what’s the problem here?” In short, politics has once again triumphed over the common good. Granted that America must make substantial cuts to resolve its unsustainable finances, a problem quite familiar to those in many Western Europe countries, it seems uniquely incapable of reaching an equitable compromise. Beneath its budget deficit, in other words, lies a political “courage deficit”.

Thus far, the debate in America has been rhetorically framed by the following question: Should we adopt a balanced or extremist approach to resolving the deficit? In other words, the central point of contention is whether there should be a combination of significant spending cuts and modest tax increases – say at a ratio of 3 to 1, as in the England – or solely draconian cuts?

Here, Democrats aptly label the Republican position as extreme since the latter remain steadfastly unwilling to consider raising taxes as part of the solution. The tentative compromise put forward by President Obama in recent days represents the best deal yet. In return for a promise to make significant cuts, Democrats want the tax code reformed in order to close loopholes and, in turn, broaden the taxpayer base to raise additional revenues.

To his credit, this offer by the President marks a significant step towards a genuine compromise. Even one of America’s leading conservative columnists, David Brooks of the New York Times, dubbed this deal the “mother of all no-brainers”. In a recent article, Mr. Brooks noted that, “If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increases.” He goes on to correctly point out, “The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.”

Despite this clear opportunity to resolve the debt issue, however, Republican leaders have flatly rejected the notion of revenue enhancements. Unwilling to budge an inch, it seems clear that many Republicans lack the required political courage to stand up to their constituents and influential supporters. Such political inertia also reflects a failure to acknowledge the widely accepted fact by economists of all stripes that revenue enhancements must form part of the solution. Meaning, America cannot solve its deficit or debt problem with spending cuts alone.

Today, the sight of America’s political parties hurling principled ideological arguments back and forth may indeed be entertaining, but the cost of such cursory debate is that it elides far more than it reveals. Simply put, it serves to obscure a far more important imperative than upholding one’s principles: namely, the need to compromise for the greater good. One thing remains clear – in order to solve its budget deficit, America will first need to solve its courage deficit.

Brit Moller