Until a few weeks ago, there was a lack of communication between the financial disaster that the United States is facing and the causes for which its main political actors fought. The White House and Congress were committed to expand the state, and critics — including those from the tea party — were committed to moral crusades rather than to curing the nation’s fiscal health.
Thanks to the controversial efforts of Wisconsin Governor Scott Walker — for cutting some benefits and limiting the excesses of collective bargaining in the state bureaucracy, as well as the $61 billion in federal cuts approved by the House of Representatives and the likely closure of the government if the Senate refuses them — the debate has changed. The country focuses, finally, on what will matter if the United States is to avoid giving the impression of aiming to swell the ranks of the Third World. Walker aims at doing what any other governor should do in his place: He will try to balance a budget that, according to how things stand at the moment, will generate a deficit of $3.6 billion over the next two years, more than 10 percent of their expenses. Wisconsin consumes 20 percent of the average income of its residents. A lot of that money maintains public employees, which are highly unionized and extremely well paid in comparison to private employees.
Walker understands the financial disaster that Wisconsin is confronted with today, as well as the majority of the other states. So far, no governor has had the guts to face the problem head-on. His example and that of the governor of New Jersey, Chris Christie, could be easily replicated. Any governor that tackles head-on the country’s financial imbalances will generate angry reactions. Even talking about such issues will provoke them. A recent example encompassed the attacks against financial analyst Meredith Whitney for warning on the program “60 Minutes” that, given the oppressive situation of local governments, between 50 and 100 municipalities will suspend payment of its bonds in the near future.
Wisconsin’s protesters and other parties are angry about the fact that public employees and government programs bear the brunt of the fiscal prudence when the massive financial bailouts have saved irresponsible banks, as well as executive bonuses that again reach astronomical levels. They are right about the banks, but letting financial institutions drop would not have solved the problem of underfunded union pensions of public employees in Wisconsin. As for executive compensation, what is the cause-and-effect relationship that exists between the private sector wage subsidies and the fiscal hollowness of cities, states and the federal government?
As the federal budget fight in Washington grows stronger, we will see great clashes between reformists and the hostages of what has been created. Democrats are rubbing their hands thinking about the possible popular backlash against the Republicans if the latter forces the government to shut down in March by insisting on cutting expenses. And the more timid Republicans fear this before the onslaught of Republicans who are much more courageous, almost all first-timers in Congress, and who recently adopted a bold step reducing the federal budget by $61 billion in the House of Representatives.
The United States has been accumulating grotesque levels of debt for too long. If the dollar weren’t the world’s reserve currency, a North American debt crisis would have already exploded. Total federal debt has reached $14.1 trillion, almost the equivalent of what the economy produces in a year. Meanwhile, the annual deficit amounted to $1.6 trillion this year. It represents almost 11 percent of the nation’s gross domestic product, a figure worse even than that of Greece, whose deficit in 2010 amounted to 8 percent of its GDP.
As a result of these imbalances, and from the illusion that unemployment can be solved through public spending, the Federal Reserve has been manically printing dollars: half of them to buy Treasury bonds. The easy-money policy has contributed to rising prices of “commodities,” whose unpleasant political, social and economic consequences are just beginning to be seen in the world.
Given this context, the battle of Wisconsin has acquired a global significance. If the forces of reason prevail, the contagion could spread like wildfire, bringing sanity to Washington and across the country. If not, they would have lost the best opportunity in years to reverse the slow decline of the United States.