29 July 2011

A Painful Silver Lining if the US Defaults

In the run-up to the general election in May this year, the ruling People's Action Party and the opposition The Workers' Party traded arguments as to whether Singapore would be better served by having one and only one political party in Parliament.

Members of the public joined in and cited the US political system as an example why a strong opposition might lead to deadlocks.

The US political system is very different from the Singapore political system, and I wrote that it was not a strong opposition that was bad, but the very structure of the US political system [link].

The US's system is a bicameral system, which makes it more difficult to adopt legislation when the Senate and the House of Representatives are controlled by different parties.

Singapore has a unicameral system.  Once a bill is passed by Parliament, it is presented to the President for his assent.  The President must act in accordance with the advice of the Cabinet when exercising his functions under the Constitution or any written law, other than in the performance of certain limited functions.

The US president and his cabinet are not members of Congress.  Neither the president nor the leader of the Senate or the House can compel any Senator or Representative to support the president's policies.  In a parliamentary system, however, the party whip is seldom lifted to allow Members of Parliament the discretion to vote as they wish.

Candidates for US Congress have to raise campaign money, collect signatures to get their names on the ballot, and personally appeal to registered voters of their party in primary elections.  Thus, local issues may be as important as, or more important than, national issues to individual Congressmen.  In many other democracies, the party controls whether to allow candidates to run, and actually puts their names on the ballot.

Significant authority is also vested with the legislatures in each of the constituent states of the US, and each of them can facilitate or impede the implementation of federal programmes.

The fragmented and diverse interests of the members of Congress may explain why it has been so difficult to reach an agreement on raising the US federal debt limit, a simple matter (many countries don't even have a debt limit that they are not permitted to exceed) which has now been inexplicably linked to balancing the budget, reducing spending and increasing taxes.

If no agreement is reached to raise the federal debt limit by 2 August, the US will default.

It is difficult to imagine a country that faces a debt default not because of economic factors nor world events.  Incredibly, it is self-inflicted.  Raising the debt limit does not empower the government to spend more; it only allows the government to borrow what is necessary to ensure that the programmes previously approved by Congress are funded.  It is an unfair tactic to use to curtail such programmes.  It is not the appropriate tool to use.  It is a dangerous and reckless tactic.

The US is in this bizarre situation because its politicians do not have sufficient courage or will to do what is right for the country.  Perhaps, everyone thinks only his proposal is right for the country, and no other proposal will do.  But if everyone sticks to his guns and does not compromise, the country will grind to a halt and trigger a default.

There appear to be three options.  One, a combination of mostly spending cuts and some tax hikes; but Democrats are against spending cuts that will affect the vulnerable (and not every Democrat agrees with President Obama on the cuts) while the Republicans are against tax hikes for the wealthy which they say is bad for the economy.  Two, spending cuts only (which many Democrats do not agree with).  Three, neither spending cuts nor tax hikes, but giving President Obama the authority, and the blame, for raising the debt ceiling.

According to a recent Washington Post-ABC News poll [link], there is considerable agreement among Democrats, Republicans and independents on many of the specifics, contrary to what may be inferred from political posturing by the politicians in Washington.

Will the US avoid a default?

No sane person wants to see the US defaulting.

But in the worst case scenario if the US does default, its leaders and its people may look at it as just the catalyst for the country to address not only its growing debt but also its political system which is proving to be dysfunctional.  No one, no faction and no party should hold, or should be allowed to hold, the country to ransom — by threatening to destroy the country and the economy, doing to the country what its worst enemies would only dream of doing.

May God bless America.

This post was previously published on 23 July 2011.

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