Friday, February 19, 2010

Trapped in a political gridlock

Business Times - 20 Feb 2010

Trapped in a political gridlock

Americans could find themselves facing financial bankruptcy, but there seems to be very little political will on Capitol Hill to do anything about it


THE announcement by Democratic Senator Evan Bayh, 54, from Indiana that he would not be seeking re-election this year is continuing to send political shockwaves across Washington.

After all, the relatively young and very telegenic lawmaker, who had served as a successful governor of Indiana and was elected in 1998 to the Senate seat once held by his father, was considered to be one of the leading stars in the American political scene.

Almost everyone seemed to agree that he was destined to run for, and even get elected, as president sooner or later; in fact, Bayh was on the top of the list of President Barack Obama's choices for the position of vice-president.

And as a conservative Democrat representing a traditionally Republican-leaning 'red' Midwestern state - that had nevertheless voted for Democratic presidential candidate Obama last year - Mr Bayh who has promoted centrist policies on social and economic issues occupied a powerful position on Capitol Hill. He was someone who could forge bipartisan coalitions with Democrats and Republicans.

Mr Bayh's decision not to run again for the Senate this year (despite a strong cash position with about US$13 million in campaign money) not only marks the end of the promising political career. It also opens the door for the Republicans to seek, and in all likelihood win, Mr Bayh's vacant Senate seat in the coming mid-term Congressional elections. The 2010 elections could end the Democratic control of Capitol Hill and make it even more difficult for President Obama to achieve his ambitious policy agenda before the end of his first - and perhaps last - term in office.

But, as Mr Bayh explained during a press conference announcing his retirement, his decision not to run for a third Senate term stemmed from his conclusion that the US Senate was becoming dysfunctional and that with the level of partisanship there rising to the stratosphere, it was becoming close to impossible to advance any meaningful legislation aimed at fixing America's major economic and social problems, including the costly and ailing healthcare system.

The Senate has failed to pass legislation to overhaul healthcare and the likelihood that it could happen anytime soon does not look good after the Republican victory in the recent special Senate race in Massachussetts.

With 41 Republican Senators, the party will be able to utilise various legislative tools to prevent the remaining 59 Democrats from getting their proposed bills approved by that legislative body.

Indeed, as Mr Bayh and other observers see it, the proposed and now dead healthcare reform bill is just the latest political victim of the legislative deadlock that seems to paralyse the Senate, and by extension, much of the important work in Washington. Topping the unfinished work has been the failure of Congress and the Obama Administration to agree on ways to start reducing the ballooning US budget deficit that poses a long-term threat to American economic security.

Hence, the decision by China to sell US$34 billion of US government bonds in December, has raised concerns in Washington that Beijing may be losing confidence in American willingness and ability to deal with its unsustainable debt levels. It may also signal that China is not going to continue bankrolling the expanding US deficits.

The new federal budget which was unveiled by President Obama on Feb 1 projected that the deficit for this year will hit a record US$1.56 trillion, 10.1 per cent higher than last year's then-unprecedented US$1.41 trillion gap.

Already the deficit for the first four months of the budget year is expected to total US$435.5 billion, 10 per cent higher than last year's pace. In the long run, the administration is forecasting that the deficit will remain above US$1 trillion in 2011, the budget year that begins next Oct 1, and will probably not dip below US$706 billion over the next decade.

Indeed, over the decade from 2011 to 2020, the administration forecasts that the deficits will total US$8.53 trillion.

Most economists agree that the current deficits have been driven higher by the Great Recession which led to a huge increase in government spending as part of an effort to revive the economy and stabilise the financial system.

At the same time, the recession has resulted in major cuts in government tax receipts while massive spending on defence - including paying for two major wars and homeland security - has placed added pressure on the deficit.

While Obama and his economic aides have promised to get control of the deficits once the economy starts recovering and even proposed in its new budget a three-year spending freeze on discretionary government programmes (excluding homeland security and defence) - a down-payment of sorts - most observers believe that Washington needs to move swiftly and in a more comprehensive way to get the budget deficits under control.

They warn that the retirement of millions of Americans in coming years will only increase spending on popular government social and healthcare programmes for retirees and the elderly.

President Obama said that he would appoint an advisory commission to report by the end of this year on how to achieve more significant future cuts in the deficit. But reflecting the partisan mood on Capitol Hill, Republicans Senators, including those who had backed the idea of a commission in the past, have expressed opposition to the White House's plan.

In response to the deadlock in the Senate, President Obama is planning to issue an executive order - which does not require Congressional approval - that will establish a bipartisan commission assigned to come-up with recommendations to find ways to cut the deficit.

But the commission's work could prove to be just the start of a long and painful political and legislative process that could end with another deadlock. Almost every senator is expected to oppose plans to make cuts in his or her pet project. And while Republicans will continue resisting proposals to increase taxes on households and businesses, Democrats will probably reject steps to reduce spending on social programmes. In addition, the many interest groups operating in Washington are likely to apply their power to force Congress to ensure that the government continues spending more money on, say, defence and assistance for farmers and other favoured sectors of the economy.

Everyone in Washington, Democrats and Republicans alike, recognise that without large and very painful cuts in government spending, Americans could find themselves confronting the threat of financial bankruptcy a la Greece.

The problem is that there is very little political will on Capitol Hill to do anything about it.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.


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