The Truth about the U.S. Deficit

We will have to wait until all the details are revealed in order to have a clearer notion about the agreement that will allow the White House to avoid the swindle that has been terrifying the planet for the past few weeks. But it is already possible to understand what the real issues at stake were.

You might even believe that the deficit debate involves grave ideological issues between partisan politicians that favor a minimal state and a strong market, and the ones that favor a strong and minimal state. This helps the debate, allows for serious, grave and academic discussions but hides the main point.

The theory could even have substance if combined with reality – but this is not the case.

The American deficit did not rise because the Obama administration increased its public revenue and harmed the taxpayer. The total of taxes collected by the Treasury reaches 14.8 percent of the GDP – the lowest percentage in the last 50 years in the U.S., and one of the lowest in the world among developed countries.

The truth is that few presidents were zealous enough to make the theoretic speech on spending control as did the republican George W. Bush, Obama’s predecessor. In practice, the U.S. deficit has reached a record high because of a schizophrenic strategy produced by the same administration.

On one hand, Bush promoted two vigorous tax cuts that opened huge holes in the budget. At the same time, he plunged the country into two billion dollar wars, which drastically increased spending. Fearing the loss in popularity caused by military conflicts, he avoided asking the population to make any sacrifices and pushed the issue aside himself.

This is the result.

In the years preceding Bush’s administration, the country was contemplating a different future. The majority of American economists thought, during Bill Clinton’s democratic administration, that the country was on the verge of achieving a $5.4 trillion surplus in its accounts. The predictions were that starting in 2009 the country would not even owe a dollar.

The derivative and subprime mortgage crisis showed that the economy’s well being was not as solid as it seemed. The deep inequalities of American society put a toll on the economy.

Having to look for home buyers in the low-salaried population sector with unstable employment and little state protection, Wall Street giants built a sandcastle that would break down in the following years when a big chunk of small debtors had become unable to pay their debts.

Unable to face market fluctuations because of the faithfulness to his vision about the market economy, Bush watched the downfall of Lehman Brothers with crossed arms. His economic team thought that they needed to teach the investors who took too many risks a lesson, ignoring from then on that they would bring the world into a precipice from where few managed to save themselves until now.

What is at stake today is a political debate on the eve of the presidential campaign of 2012. Without a viable candidate to oppose Obama – a president wholly stripped of his 2008 charisma – the Republican Party is playing the “worse is better” game in order to try and improvise a candidate.