http://www.economist.com/node/21525446
“The Debt-Ceiling Deal”
The deficit-reduction deal that finally raised America’s debt ceiling and prevented immediate default seemed to be successful, at least in the short-term. Republicans managed to prevent higher taxes, while Democrats managed to preserve their healthcare and housing initiatives. Ironically, however, nobody seems to be satisfied with it. Democrats and Republicans alike denounced the scheme, and both pointed the finger of blame at each other.
The deal promises $917 billion in spending cuts over the next decade, in return for an increase in the debt ceiling of $900 million. A plan to further reduce the deficit by $1.5 trillion must be formulated and approved by Congress by December 23rd, in return for another increase in the debt ceiling of the same amount. This is far from a perfect solution, but it will have to do until a better one can be set into motion. Why is the deficit such a big deal? On it’s own, it is economic in nature, and that is something the Government can rectify. But the problem comes in when political parties try to politicize the economics. Then the entire country becomes involved, and the problem is made much more complex.
I think the economics should stay economic and fiscal in nature. Granted, economic policies affect the entire country, just as politics do. But the critical difference is that when facing an economic problem, a country can stand united to meet it head-on, with all of its strength. A plan can be worked out in a relatively short amount of time, and the plan can be set into motion across the entire country. Policies can be effective in just a few months. When political parties try to use economics to impact politics, the country becomes divided. Nobody can agree on what to do, because both parties think the other is wrong, and that their own chosen solution is the best. There is no ability to reach a compromise, let alone a consensus that everyone supports. As Abraham Lincoln once said, “A house divided cannot stand.” That is the case in America, when the Republicans and Democrats were not just fighting a routine political battle. They needed to first fight the economic battle, as a whole, as one entity. When that was won, the political battle could be carried out.
Who can be deemed to be “more correct”? The Republicans press for huge tax cuts, which they claim will help companies to hire more workers and create jobs. The Democrats press for higher taxes on the affluent and more wealth to be distributed amongst the poor. Frankly speaking, I do not think either one will work on its own.
The Republicans believe that with more money, companies can create more jobs. I think it already has become very apparent that companies based in America are no longer hiring from the pool of workers in America, who demand high pay, good working conditions as well as job security. Compare this to the image of a typical Chinese factory worker. He comes from a poor family or village, so he is thankful for any type of job at all. He is used to waking up early and sleeping late. He does not complain about being overworked or having not enough sleep. Isn’t it much easier and much less bothersome for companies to hire workers fro countries with lower standards? This is essentially why America cannot recover effectively from the economic crisis. Companies find it much easier to hire from other countries. But the demands of high salary are driven by higher cost of living. The only solution I see is to retrain workers so they have better qualifications for the job. Essentially, higher tax cuts will never work because the money saved does not benefit the employees. The money saved benefits the top cats and lines their pockets.
The Democrats believe that with more distribution of money to the poorer people, they will be more able to get jobs. How does that premise work? A person who consistently gets “unemployment benefits” for doing absolutely nothing will soon realise that he can live off the government’s “welfare packages”. It is just like giving a child rewards for lazing in front of the television and expecting him to do his homework. The basic idea simply does not work. The main focus should not be on looking after the unemployed. The main focus should be on enabling the unemployed to be employed so they can look after themselves. The added disadvantage is that when such pensions for elderly folks are rolled out, it is very hard to take them back. People will think it is unfair that they worked for so long, and the people before them got to enjoy it but they didn’t. The people of France protested all over the country in response to President Nicolas Sarkozy’s decision to raise the retirement age from 60 to 62. How do you expect someone to get a job and look after himself when he can get more from lazing in front of the television all day?
I think these two measures can only work if they are employed together, with an added component. Companies will get tax cuts, provided that they use the money to help their employees get trained. Individuals will get pension, provided that they go for retraining classes to improve their qualifications. The basic premises of the two different measures can work if they are modified with conditions. Which company would increase a relatively high employee salary when it could use the money to fatten its profit margins, and which person would go work when he could get money for free? I think this is one of the best ways to share political pain equally between the two parties, and solve America’s budget deficit problems.
Ultimately, America’s leaders will have to pull together and emerge from the fiscal firestorm that already threatens to engulf the nation. Otherwise, America will default on its debt. And when it does, it will be too late.
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