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Jeffrey Simpson (Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

(Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

Will Americans 'do the right thing' on debt? Add to ...

Winston Churchill once quipped that "the United States invariably does the right thing, after having exhausted every other alternative." We can only hope so.

Were the potential consequences not so serious, what is unfolding in Washington this summer - and by extension across the country - would be otherwise considered farce.

On Aug. 2, Congress must vote to raise the U.S. debt ceiling; that is, the amount the national government can borrow. If Congress balks, then the U.S. government will shut down, which is exactly what has happened in the formerly sensible state of Minnesota where the state government closed on July 1.

A national government shutdown would send a message to the world's financial markets that the U.S. cannot properly govern itself, and is therefore a less reliable place to invest. The repercussions, economically speaking, could be significant for a country with a 9.2-per-cent unemployment rate, weak economic growth and a faltering housing market. In addition, federal stimulus money has run out, state governments are slashing payrolls and the Federal Reserve's two bouts of additional monetary stimulus, called "quantitative easing," are over.

As Churchill suggested, there is time for something to be cobbled together in Washington before Aug. 2 between President Barack Obama and House Republicans. And it is likely that even if the debt ceiling is not lifted that, by hook or by crook, some parts of the U.S. government will still function, if only for a while. Soldiers will get paid; ambassadors will presumably remain at their stations; and the CIA will continue to collect information - all in the expectation of some future deal.

What a way to govern a country. Almost every sensible economist, to say nothing of two bipartisan commissions, recommends a blend of spending cuts and tax increases to begin remediation of the enormous U.S. deficit and debt challenges.

Reasonable people can disagree on how much spending needs to be cut and how much revenue should be raised. If such people were to accept that a blended solution is the only one that makes sense, then they will find a compromise. This is precisely how the two bipartisan commissions achieved a final compromise. Unfortunately, their advice has been discarded.

Reasonable people are in short supply in Washington, a city that reflects the fierce political division in the country as a whole. In particular, the Republican Tea Party element refuses any tax increase or even elimination of tax loopholes. They are zealots at a time when the country needs reasonable people.

The Obama administration has already made two remarkable gestures to find a compromise. First, it sent Vice-President Joe Biden into negotiations with House Republicans to find $2-trillion in cuts, with scarcely any revenue-raising measures. These efforts failed when Republicans balked. Then, the President suggested a $4-trillion package, mostly financed by spending cuts.

For a Democratic administration, whose own elected representatives in Congress don't like spending cuts, these were bend-over-backward efforts to find common ground. The senior House Republican leader, John Boehner, was reported to be interested in the $4-billion package - until his Tea Party colleagues nixed any deal that contained a penny of additional revenues for a government they believe bloated and in need of cuts.

So here is the most powerful country in the world, with the world's largest economy, staggering from deadline to deadline, unable to confront in a serious and sustained way the country's biggest long-term challenge.

Even if a modest deal were cobbled together to avoid a debt-ceiling shutdown, the longer-term issue of a country spending much more than it raises in revenues would continue to plague the United States for many years.

Couple the fiscal problem with the underlying structural challenge of unemployment whereby 14 million people are unemployed, 6.3 million of whom have been unemployed for more than six months. The result is a whipsaw problem of the need to constrain spending for reasons of the deficit and the requirement to stimulate the economy to create jobs.

With the presidential and congressional elections 16 months away, the chances of a political agreement to tackle either, or both, seem remote. Those of us outside the U.S. can therefore only wait and hope that Churchill's axiom eventually holds true.

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