The Political Crisis Must Be Resolved

The U.S. spent the beginning of 2011 in a fierce political conflict regarding the expansion of its medical insurance program, Medicaid. This led to an unhealthy polarization of public debate. Six months in, they are at it again. Our neighbors to the south have been wedged for days in the middle of another political crisis that should be solved, at the latest, by next Tuesday, Aug. 2. The American government must decide before this deadline if it can increase its debt, which is already sitting at 14.3 trillion (or 14,000 billion) U.S. dollars.

For 40 years, the U.S. has heavily increased its debt without any political repercussions. This has included 70 increases of the debt limit, as many under the Democrats as under the Republicans.

From a Canadian point of view, the Democrats and Barack Obama’s plan is nothing sensational. It intends to work both sides of the equation: increase revenue and reduce expenses. They want to see budget cuts for certain social programs (including, among others, social security and medical insurance), and even the budget of the U.S. Army, which has so far been untouchable, could take a hit. Then there is the tricky question of individual and company taxes. George W. Bush cut taxes for the wealthiest Americans to thank them for their electoral support and in the hope that they would stimulate the economy with their spending.

Democrats believe that the working and middle classes already have their hands full keeping their heads above water since the economic crisis of 2008. If there are tax increases, they must necessarily affect the wealthiest.

But today’s Republican Party is not that of Ronald Reagan, or even George Bush Senior. A new band of elected members, as well as others faithful to the extremists of the tea party, ensure that this will not occur. Besides, many have won their elections on the promise of not accepting a single tax increase and they will oppose any Democratic proposition tooth and nail, using any measure that would facilitate access to credit for the American government.

Neither have they accepted the expansion of Medicaid yet, a concession they associate with a socialization of health care. In a way, the most ardent Republicans hope to handcuff Medicaid financially, and thereby undo it, something they did not manage to do earlier this year.

Earlier this week, President Obama took the stage and launched an appeal to the American people to put pressure on his politicians so that they will rally themselves around a position of compromise — a position that, of course, would come close to his own. They seem to have responded to his appeal and the days to come will be crucial.

The stakes are not only federal. If the U.S. AAA credit value, impeccable for a century, is drastically reduced, Americans will be negatively affected over the long-term by the weakness of the dollar, by an increase in interest taxes on consumption and mortgages, by a drop in the financial market, etc. The American stock market is too fragile to risk this.

Canadians can do nothing but — as in many other cases — deal with it if the situation south of the 49th parallel turns ugly. A strong Canadian dollar is nice for those who take holidays in the U.S., but it is incredibly harmful to our own economy as it slows down the flow of the billions of dollars that Canada exports there every day. This means fewer planks sent to be sold in the hardware stores, fewer cars coming from Oshawa and Windsor, etc.

Canada therefore has all its interests in the resolution of this American political crisis because we well risk bearing the brunt of it.

The most durable solutions advocated by Barack Obama seem to us more sensible, but one thing is sure: He and the Republicans will have to make compromises rather than just keep talking about it until one minute to midnight.