Crisis Squandered and Persisting

You never want a serious crisis go to waste, said Barack Obama’s future chief of staff during the financial crisis in the autumn of 2008. Some reacted against the statement, which they found cynical, and Rahm Emanuel faced hard criticism. However, many in the entrepreneurial U.S. didn’t have any difficulty understanding what he meant. Unusual circumstances create opportunities, and opportunities should be seized.

Take television, for instance. I was in the U.S. last week and rounded up my trip in New York. On Friday, there would be a snowstorm in the Northwest*, and it was a crisis that TV channels didn’t have the slightest intention of allowing to go to waste. During this period, when there were forecasts but nothing had yet happened, the most impressive speculations were possible.

It was totally fascinating to sit and flick between channels and see one reporter after another, attired in get-up that would have made [Norwegian Antarctic explorer] Roald Amundsen envious, stand on city streets and herald Snowmageddon — at the same time as office personnel in normal clothes passed behind them on the way to lunch.

Eventually, truly bad weather arrived, but not in New York. Several inches of snow fell in Manhattan overnight, and the next morning it was sparklingly beautiful in Central Park. Delighted dogs got their walks. Not far from the Natural History Museum, a couple of guys came walking with skis over their shoulders.

Serious crisis or not, the opportunity was seized in any case.

It is more unclear how well the White House has succeeded in managing those unusual circumstances that followed in the wake of the Lehman crash. The regulation of capital markets has, by all means, been toughened by a law usually known as Dodd-Frank. Though the government has focused on the stimulus package, the extensive structural transformation has happened in healthcare policy and has not much to do with constructive crisis management. On the contrary, the massive project has made many believe that Obama gave the economy and jobs too low a priority, and thus, it became a threat to his reelection. If the opposition had not been Mitt Romney, nobody knows how it could have ended.

Instead of becoming a catalyst for change, the acute crisis has transformed into a permanent one. The job market is being energized gradually and house prices are rising. Growth is estimated to be passable this year and slightly more decent next year. Nonetheless, anxiety continues to set the agenda—which became increasingly clear during my visit, in conversations and reading when we were in Washington and New York.

The budget deficit and national debt have the lead roles. To start with, the conflict over how they should be tackled is as acute as it is intransigent. Should no settlement be reached between the Democratic president and the Republican House of Representatives before the close of February, extensive automatic cuts will come into effect.

The general consensus so far has been that both parties in the end will back off and not allow it to happen — no one wants to be responsible for endangering the recovery — but I think there are more and more hints that the parties have started to reconcile themselves to the idea. “The Republicans will get the blame,” thinks the president, supported by his election victory. “Better too stringent cuts than increased taxes,” reasons his opposition.

However, it's not just about the short-term drama; it’s also that the deficit and debt have taken hold of moral imagination, no matter how much they are marketed by Paul Krugman. Imbalances have become something more than economic quantities, as they chafe and irritate and feel like the symptoms of fundamental flaws. The crisis is not only the half-gloomy economic situation and the pressure on public finances — it is also considered that structural and value issues have caused the pressure to build up.

Heavyweight Fareed Zakaria addressed this in a recent Foreign Affairs essay (from January/February 2013) with the hilarious title, "Can America Be Fixed?" Writes Zakaria, “The focus in Washington now is on taxing and cutting; it should be on reforming and investing." It could be said that the budget battle overshadows the serious discussion of why the budget fight exists: the absence of frank dialogue, reluctance to prioritize that which has effect only in the long term.

As a share of the GDP, government spending on research and development is now half as large as it was in the 1960s. America's infrastructure was the fifth best in the world 10 years ago, according to the World Economic Forum. Today it ranks as 25th and has a declining trend. Flight management systems and power grids are outdated. Tax regulations are 73,000 pages long.

The left embraces welfare systems; the right refuses to allocate new resources. The result is that government transfers and defense crowd out investment.

In a sense, the voters get what they want, namely "low taxes and plenty of public services." As a bonus, they get a lasting crisis, which is not easy for anyone to take advantage of.


*Editor’s note: Although this has been translated correctly, the storm was actually forecast for the Northeast of the USA.