INET economist Simon Johnson with one of the more salient post-shutdown takes yet, for its defense of federalism and its indictment of anti-government creep:
With a last-minute agreement on lifting the debt ceiling, the immediate threat of legal and financial disaster from a default on United States government obligations has been averted. But the last week has provided additional insight into how and why the current governmental arrangement known as the United States of America will end.
The mainstream narrative is that the problem is “dysfunctional government” or “paralysis in Washington.” That’s true, up to a point, but the real problem is the steady decline in legitimacy of the federal government – and the way this is related to what has happened on the right of the political spectrum.
But the decline in legitimacy of the United States government is real and lasting; it cannot regain the prestige it had in the 1940s and 1950s. Reinforcing and accelerating this trend is perhaps the greatest damage caused by the financial crisis of 2007-8 and the “rescue” measures that ensued.
I am struck by the captains of industry who insist to me, in private, that large financial companies deserved their “liquidity” loans from the government in 2008-9 – and that the exact same policy should be pursued in the future because “asset prices always rebound.” I never hear them suggest that the same kind of support should have been extended to smaller businesses or homeowners. This reflects, at best, a political tin ear.
Sooner or later, the American public may elect a group of politicians determined to end the belief that the federal government can be trusted. Their initial steps in that direction will strengthen their showing in opinion polls – and they will be encouraged to go further. At that time, the United States will default on its debts and the world’s financial and fiscal systems will be plunged into chaos.
Some recent editorials by Simon Johnson:
Now really stupid fiscal policy threatens to bring the United States down. The primary cause of any public finance crisis is not the ability of people to pay their taxes, it’s their willingness to pay their taxes — or, as in the current situation in the United States, the willingness of their elected representatives to finance the government. And this willingness is always tied closely to the legitimacy of the government. Does enough of the population think that the people with political power won it in a fair manner and, consequently, are they willing to accept policies with which they do not necessarily agree?
The United States faces a serious fiscal crisis not because of the continuing sequester or the partial government shutdown per se, but rather because of what those experiences indicate about what will be considered acceptable tactics in the imminent fiscal confrontation over raising the debt ceiling.
Today’s optimists are those who think the current partial government shutdown will allow the Republican Party to work out some internal issues — and actually make a showdown over the debt less likely. Perhaps the political base will be satisfied by a demonstration of dissatisfaction against carrying out the Affordable Care Act, or perhaps their elected representatives will heedwhat opinion polls show them.
Realists also like to point out that when the United States has big fiscal confrontations — for example, over the debt ceiling in the summer of 2011 — it tends to destabilize the rest of the world more than it hurts the United States. Interest rates on Treasury debt tend to go down in the face of potential fiscal mayhem. The United States is the only country in the history of the world for which that is true.
I’m more pessimistic. The United States won its global predominance in a short period, but based on a long haul of industrial development, productivity gain and fiscal prudence. Now the groundwork has been laid for its decline with political polarization, a longstanding tax revolt and a well-orchestrated campaign to undermine the legitimacy of the federal government.