Bill Emmott - International Author & Adviser


It´s their Tea Party and the world is not invited
The Times - August 1st 2011

The Founding Fathers must be chuckling in their graves. They designed the American constitution, with all its checks and balances, expressly to thwart decisive government, and they have certainly succeeded spectacularly in that aim during the farcical argument over the raising of the country’s $14.3 trillion “debt ceiling” (a sort of legal overdraft limit) to avoid a default or a mass of spending cuts tomorrow. The thought of what that argument has done to the country’s international credibility and prestige might, however, be enough to wipe any grins off the ghostly faces of Thomas Jefferson, George Washington and the rest.

            One noteworthy fact, admittedly, is that throughout this process virtually no one has expected America actually to default, or even to have its credit rating downgraded from triple-A. Compare the run-up to this past weekend’s negotiations with those before the eurozone’s emergency summit on July 21st: while euro-zone bond yields, especially for Spain and Italy, soared in fear of a default by tiny Greece, the market for American Treasury bonds has remained pretty unfussed. Rates for very short-term Treasury paper jumped about a bit, but those for 10-year bonds in fact fell on Friday. The dollar slipped, but not exactly catastrophically.

            Perhaps the markets adhere to Churchill’s cynical view of his allies: “You can always rely on the Americans to do the right thing…after they’ve tried everything else”. Perhaps by being so calm, this means that the eventual storm will be truly horrendous. More likely they have seen it all before, the eleventh-hour negotiations at which a bad deal is done, but at least it is done, and as yesterday’s bargaining closed in on a supposed $3 trillion of spending cuts over ten years they looked like being proven them right. More deeply, their impassiveness may well reflect a feeling that the real issue is a rather more long-term one than has been represented by a somewhat artificial deadline such as the debt-ceiling expiry on August 2nd.

            The real issue comprises a medium-term phenomenon and a longer-term question, though they are closely related to one another. The first of those is symbolised by, but not limited to, the group of Republican conservatives inside and outside Congress who call themselves the Tea Party.

That group, whose heroines are Sarah Palin and a fiery congresswoman from Minnesota, Michele Bachmann, has held a position during these negotiations over fiscal reforms and the debt limit that is analogous to that of John Major’s “bastards” and the most virulent Tory Eurosceptics in 1992-97: when there is a small Parliamentary or Congressional majority, a group of zealots can gain a blocking veto power far beyond their actual numbers.

A historical analogy that is closer to home and of greater significance would, however, be the isolationist movement during the 1930s. The Tea Party’s position on America’s vast debt sounds, on first hearing, as if it resembles that of George Osborne: they say the nation’s credit card has been maxed out, and that when someone has borrowed too much, it is wrong to let them borrow more. Yet in reality, to try to cure the debtor so suddenly, by banning them from borrowing and obliging them to default on their obligations, obligations that have all been established by previous Congressional votes, would be irresponsible, insouciant and, in its effect, isolationist.

It is insouciant and isolationist because America is the world’s largest economy as well as its largest debtor, and many of its government bonds are held by foreigners. A default would substantially be a default on foreign debts. But the Tea Partiers do not care about foreigners, or about their country’s international credibility. “Stop the world, we want to get off” is not their motto, but it might as well be.

Like the America First movement in the 1930s and the early years of the second world war, they argue that the country should leave the world to sort out its own problems, while America focuses on itself. Worse, in a sense, some in the Tea Party see the world as a threat to America: Ms Bachmann, currently the Tea Partiers’ only declared presidential candidate for 2012, proposed two years ago a constitutional amendment to bar the dollar from being replaced by a foreign currency, a move that is in fact already illegal and was being contemplated by no one.

When the global financial crisis broke in 2008, many worried that it would produce a wave of protectionism, especially in the United States, and there have been sighs of relief that this has not happened. Yet the Tea Party’s rise in and since last November’s Congressional elections suggests that the real threat is isolationism, which may in time produce trade and financial protection too.

It would be wrong to over-state the Tea Party’s current importance: it remains a small but vocal minority, and unless there is yet another last minute stumble, it has lost its immediate fight over the debt ceiling. But the big medium-term battle is for the White House and control of Congress in the November 2012 elections. It would be comforting to believe all those ordinary people interviewed on BBC bulletins who say they are maddened by the irresponsible behaviour of Congress, especially the Tea Party blockers. Yet they are being interviewed in Washington, DC, and New York, and may not be typical of the nation. There is a lot still to play for in next year’s elections, and the Republican conservatives will play for it very hard.

As they do, the longer-term issue will be at centre-stage: can the American economy do what it has done before, and revive and reform itself from the bottom up, despite the unhelpful shenanigans in Washington? It is famously flexible, and the true American heroes have always been the Googles, Wal-Marts, Apples and Boeings, not any far-sighted political visionaries in the capital.

The latest economic data, released last week, showed a similarly stagnant picture in America to that in Britain. This is not surprising, in either case: having relied too much on consumer spending and on credit booms, both countries were bound to have to go through a long, painful period of adjustment. Even if exports were to grow, which they have for America and Britain, they would be hard-pressed to completely overcome the drag of post-crash retrenchment—and that was true even before high oil and food prices came along to make consumers feel poorer still.

This will go on for quite a long time to come. At first, fiscal policy was a solution, since borrowing stimulated the economy. Now it is a problem, because cuts, however necessary, depress demand. In America, where the cuts are anyway being deferred, there is an added complication: the long wrangle over fiscal policy and the size of government, which will run up to and beyond the 2012 election, is producing a thick fog that obscures not just the fiscal future of the country but also the future of America’s relationship and attitude to the outside world.

In that highly uncertain, foggy environment, it would be truly miraculous if businesses were to decide to go on an investment spree in America. So the best assumption, sadly, is that they won’t.






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