Standard and Poor’s decision to warn of a possible downgrade in America’s debt rating — described as a “stark warning” by the Financial Times — is a welcome reminder that there is more at stake in the current spending battle in Washington than political careers. Normally that is not the case. This nation is resilient and has proved able to survive virtually everything politicians have thrown at it — wars, inflation, and even the New Deal. The current obsession with high spending (as much a Republican initiative as a Democrat one) however threatens that resiliency to the point of fracture.
Simply put, America has three choices: continue as at present with high spending and middling taxes, grow government by high spending financed by high taxes, or shrink government to low spending and so reduce taxes. The current battle over the last two options is so bitter and partisan, and the country is so divided on the issue, that the normal expectation would be stalemate and a continuance of the status quo. The S&P warning should signal to the politicians and the public that, in this case, that cannot be allowed to happen. Down that road lies a bankrupt nation.
So the battle in Washington must continue, and be fought to a decisive end. We should be clear, however, where the president and the Democrats want to take us. They want to make the U.S. into just another European country, with high levels of publicly-provided social services maintained by excessive taxes on the wealth-producing class. Vast numbers would be dependent for their livelihood — either via welfare or employment — on a government that exists as a gigantic money-go-round. This cartoon ably sums up the proposal (hat tip: Dan Mitchell):
For a detailed dissection of the Obama “deficit reduction plan,” see Keith Hennessey.
The alternative is a return to smaller government. The Republicans have traditionally talked a good game on this, but been terrible at delivery, as exemplified by their profligate spending over the past decade or more. There are signs that this is turning round, but the proof of the pudding remains in the eating. They need to realize that if they fail now, America will either go bust or be transformed into a social democracy, and the great American experiment will slowly grind to a halt.
Small government’s time has come. It is our only hope.