Why did I avoid commenting during the recent frenzy over the raising of the federal government's debt ceiling? Because, in my view, the importance of those negotiations was blown way out of proportion. (I guess that in the absence of political sex scandals, e-coli in Paul Krugman's salad, or anti-globalization riots, the media would grasp desperately at just about anything to entertain us in the summer heat.) Even though Congress seemed torn apart along rigid ideological lines, the relative stability of the global markets during the last few months was a clear indication that most actors were fairly confident that a deal was imminent.
For all their rhetoric, the Democrats could not allow higher taxes, interest rates, and mortgage costs to cripple the slowly recovering economy. How many among them would risk sending unemployment figures into double digits during President Obama's 2012 campaign? On the other side, there is not enough political will for tackling America's long-run fiscal problems in the ranks of the GOP at this stage. How many among the well-established Republicans would risk running for reelection under accusations of contributing to a potential United States default, a loss of the government's triple-A credit ratings, and another global economic storm-and all of this less than a year after winning majority in the House of Representatives?
Even if the two parties had continued to debate the details of a deal after Aug. 2, the world would not have come to a premature end. Uncle Sam has more tricks up his sleeve than you and I could imagine. In addition to cutting tons of wasteful discretionary spending and the option of privatizing immense government assets (land and real estate, gold and oil), the government can avoid default for many months through creative accounting. Even the postponement of some payments to foreign and domestic creditors would not make any of them any poorer in the end.
The big question is not what to do about this cash-flow crisis; we need to find something that could force our federal government to act more responsibly in the years of expansion that will follow the recession.
"I could end the deficit in five minutes," boasted Warren Buffet. What is this miraculous solution? The billionaire suggests a law that makes all sitting members of Congress ineligible for reelection should they allow a deficit of more than 3 percent of gross domestic product. But how likely do you think it is that a majority of politicos will rally behind passing such a piece of legislation any time soon? Or ever?
Editor's Note: Part two of Alex's parable on Charlie's chocolate factory will be posted next Tuesday.