It’s finally time to get serious about reducing the national debt. It’s time to get serious about the phrase that is used often but seldom sincerely: “Everything is on the table.”
That means both sides have to start thinking about economics as policy, not theology. Republicans have to back off their insistence that no form of tax increase can be part of any deal. Democrats have to end their determination to protect every element of every social program. No compromise is possible unless leaders in both parties stand up to the heads-in-the-sand naysayers in their own ranks.
Anyone in Washington not totally divorced from reality knew this day was coming. Politicians have been spending money they don’t have for a long time now, but they could stay in denial for one simple reason: The world let us, buying our bonds and enabling our bad habits because the dollar was still the most trusted currency in the world. We were not Greece or Portugal or even Great Britain because the Chinese kept paying off our credit cards.
But this week that last flimsy veil was ripped away. Standard & Poor’s, the giant financial rating agency, lowered America’s economic outlook from “stable” to “negative.” And while Washington’s top-shelf AAA bond rating remains the same, that could change if a long-term budget deal is not reached -- and soon.
The most immediate challenge is raising the national-debt limit, the statutory ceiling on how much the country can borrow. The limit will be reached by July, but Republican leaders -- pressed by Tea Party types and “no tax” purists -- are holding the bill hostage and demanding as ransom a debt-reduction package that does not include revenue increases. The Democrats counter with the oldest tune in their songbook, “The Hands Off Social Security Rag.”
This is madness. The stakes are enormous, much higher than in the recent confrontation that almost closed the federal government. As Mark Zandi, the chief economist at Moody’s Analytics, told the Washington Post: “The cornerstone of the global financial system is that the United States will make good on its debt payments. If we don’t, we’ve just knocked out the cornerstone, and the system will collapse into turmoil.”
Even if a failure is narrowly averted, interest rates could rise, causing American debt payments to jump as well. The deficit problem would actually get worse, and harder to solve.
Fortunately, there are small signs of hope. Reasonable people in both camps have finally gotten the message. The so-called Gang of Six, three senators from each party, is actually trying to fashion a bipartisan compromise. Sen. Amy Klobuchar, a Minnesota Democrat, called the group “an island of rationality” in an ocean of obtuseness and political game playing.