America Must Learn to Save

The urgency of the alarm is just as shrill as it has always been: America is threatened with economic disaster unless it reduces government spending or raises taxes. But there’s one important difference for the public this time: Neither party is making any effort to avoid the sequester and its automatic cuts with some sort of eleventh-hour agreement. That’s a good thing. The damage that will be caused by the U.S. government continuing to spend more than it takes in is far greater than anything that may be caused by a little austerity.

America and Europe both face an identical bookkeeping problem: Public debt has now grown to dangerous proportions.

The White House can no longer afford to ignore that problem. The Europeans are likewise too slow in reacting to their fiscal problem, but they have at least begun to put their economic houses in order.

That’s a claim that Americans can’t yet make. Congress has actually suggested some cuts since 2011, but has then postponed implementing them. Besides that, the difference between income and outlay in the United States is greater than it is in the eurozone. In past years, the U.S. has financed roughly 30 percent of its government outlays by taking on new debt, with the watchword being that there was no way out of the debt crisis without growth. At the same time, it also served as a good excuse. It’s true: No matter whether government limits spending or raises taxes in order to fix the budget, money is taken out of the economy. Economic performance suffers accordingly, in turn resulting in lower revenue intake. Many politicians held that it was impossible to save one’s way out of the crisis. But the converse is also true: One can’t get out of an economic crisis by continuing to take on new debt.

The United States and Europe face two different challenges. There’s a strong belief in Europe that government is capable of and obligated to balance the inequalities in everyday life. Discourse in the United States, on the other hand, is dominated by the idea that government is largely superfluous, as well as being ineffective. There, personal responsibility and the power of private enterprise is prized, above all. However, in reality, Americans have also become accustomed to government policies such as tax breaks for everything from home ownership to the provision of healthcare services. The notion that in order for government to help people it also needs a source of revenue has apparently not yet caught on.

The advantage America currently enjoys is that cutbacks in government outlays are not seen as taboo right from the start. It is still more difficult to raise tax rates or limit deductions. The sequester can be a turning point. It won’t result in huge savings, but it can serve to change the public debate. America won’t fail if budget discipline is considered to be just as important as the current fetish for growth.