3

America’s Endless Budget Battle

GENEVA – Perhaps investors are becoming inured to the United States’ annual debt-ceiling debacle, now playing out for the third year in a row. But, as the short-term antics become more routine, the risks of long-term dysfunction become more apparent – a point underscored by the shutdown of the federal government.

President Barack Obama is right to complain of blackmail. The US Congress cannot expect to use the threat of default – that is, a weapon of mass financial destruction – as a normal means of extracting concessions. Unfortunately, because Obama himself has established a history of making concessions in the face of congressional brinkmanship, the debt-ceiling debate has morphed into more than just a short-term political fight.

Increasingly, the battle over the US government’s debt ceiling reflects a deeper constitutional power struggle between the president and Congress. This struggle, if left unresolved, could profoundly weaken the government’s ability to make significant economic decisions in the future.

Of course, a breakdown in political civility would hardly make the US unique; all too many countries suffer some degree of political dysfunction. It would take some doing to match (or exceed) Italy’s record of governmental paralysis. But if Congress continues to hijack US economic policy, it bodes ill for the economy’s otherwise bright long-term prospects.