America prefers fiscal idiocy to intelligent choices

In this space I have often criticised the Obama administration for failing to lead on US fiscal policy. Its recent budget, and the revised outline that instantly replaced it, were entirely unserious. Even now, the White House lacks a detailed proposal either for dealing with the immediate political challenge of raising the statutory debt ceiling and thus avoiding default – time for this runs out in a few more weeks – or for addressing the longer-term fiscal problem.

Are the Republicans any more serious? Not really. If ever there was a race to the bottom in economic dialogue, this is it.

In Congressman Paul Ryan’s budget, which the House of Representatives passed on a party-line vote, the Republicans do have a plan, of sorts, for long-term deficit control. It is a militantly conservative proposal, calling for deep spending cuts and avoiding any and all tax increases. It deliberately offers no basis for compromise with Democrats – which Republicans know is a necessary condition for any long-term proposal to be enacted and implemented.

In addition, the Ryan plan aims to reform Medicare, the popular federal health insurance programme for the elderly, and to do this in such a way that Democrats can fairly describe the idea as “ending Medicare as we know it”. In effect, it recasts the entitlement as a voucher that pays for private insurance, then caps growth in the value of this voucher at a very low rate of increase.

Medicare will have to be reformed, and Mr Ryan’s plan is not without merit. Tweaked to provide, among other things, a more realistic rate of increase in the value of the voucher, it could be workable. But the striking thing is how few Republicans, having voted for his plan, are willing to defend it, or even mention it. In test-marketing at a recent election in New York, a Republican seat flipped to the Democrats. Mr Ryan’s Medicare plan was the weapon Democrats used to win it.

So Democrats have no fiscal plan, and Republicans have a fiscal plan that not even they like and whose details they would rather not discuss.

Politicians on both sides, seeking to excuse their chronic failure to govern, point to next year’s presidential election as the time to put clear choices to voters about the public spending they want and how they expect to pay for it – and, once and for all, get a ruling. Regardless of whether Barack Obama is re-elected, this will not happen. US elections never settle issues this way: much as the parties may try to deny it, the need for cross-party co-operation, and the muddle and compromise this entails, is built into the constitution. Still, one hoped the presidential race might start a more intelligent discussion of the choices the country has refused to confront up to now.

Anyone entertaining such hopes found last week discouraging. Tim Pawlenty, seen as one of the more serious candidates for the Republican nomination – meaning somebody capable of discussing policy – set out an economic plan, as he called it, that was stunning in its vapidity. The plan is difficult to describe without seeming to parody it. I will do my best.

What the US most needs, Mr Pawlenty said, is a target for economic growth. Up to now, you see, lack of ambition has been the problem. Let this target be, oh, 5 per cent a year. Now see what growth of 5 per cent a year for 10 years – yes, 10 years – would do. The deficits just melt away. And there would be millions of new jobs.

This solves the fiscal problem and puts the economy back to work, but one cannot stop there. The size of government, a problem in its own right, would still need to be reduced. Therefore, let there be a constitutional amendment to cap public spending at 18 per cent of gross domestic product – six percentage points of GDP below its current level, and well below the average of recent decades. That way, demographic pressures on Social Security and Medicare would be unconstitutional, and hence contained.

This reduces the pressure on taxes, so Mr Pawlenty can take the Republican refusal to countenance increases of any kind and square it. Rates of income tax will come down; personal tax exemptions will remain (no need to widen the tax base); and taxes on capital gains, dividends and interest will be abolished altogether. It all adds up because the economy will growing at 5 per cent a year.

One hopes that Mr Pawlenty, in proposing this idiotic farrago, is making a cynical tactical calculation: win over the Tea Party activists by outflanking everyone on the right – difficult as that may be – then come back to the centre once the nomination is won. But having put down markers such as these, travelling all the way back to the land of the sane may be impossible. In any event, if you hoped that the presidential contest might raise the quality of discussion about US fiscal options, read Mr Pawlenty’s speech and weep.

One way or another, the US is finally going to collide with fiscal reality. There need not be a crisis: deals might yet be cut to make this collision less violent. What seems ever less likely, though, is that the country’s politicians will frame intelligent choices to put before voters, or that voters will insist that they do.

clive.crook@gmail.com

More columns at www.ft.com/clivecrook