The deficit supercommittee tasked with finding $1.2 trillion in budget savings in the next decade has just one week to meet its congressionally mandated deadline of Nov. 23, but any deal reached is unlikely to solve America’s economic problems.
Today’s Wall Street Journal reports that supercommittee members are resorting to accounting tricks rather than making the sort of structural changes that will have an impact on the national debt.
And this should come as no surprise. For one thing, we are now in full campaign mode, and each party is massaging its own formula for forging a coalition of its core constituency plus independents. For that reason, Democrats will be loathe to cut domestic spending or fundamentally alter Medicare and other entitlement programs, preferring tax hikes and defense cuts; they will woo independents by portraying Republicans as beholden to the wealthiest Americans because of a refusal to increase taxes. The GOP for its part will hold the line at its recent proposal to raise $250 billion in tax revenues, looking instead for close to a trillion dollars in cuts to the areas Democrats hold sacred.
Bob Rodriguez, CEO of First Pacific Advisors, was correct when he told AdvisorOne in a February interview that absent structural reforms undertaken this year, a new financial meltdown will likely befall us in a few years. He said at the time: “We need significant fundamental reductions in expenditures at the federal level this year because they’re not going to happen in 2012, which is an election year. If not, by 2013 we’ll be sitting on more than $17 trillion in debt. Therefore, the window to start reform is only about seven months.”
Aside from the political reasons for the absence of structural reform, there is a deeper cultural reason. Western society is not what it once was. Take a look at Europe, with whom we share a civilization, for a clue. The list of Eurozone countries experiencing extreme economic distress now includes at least seven countries. The spread of debt woes from the original five PIIGS – Portugal, Italy, Ireland, Greece and Spain – to Belgium and France should increase worries about financial contagion.