WILLIAM GALSTON MAY 6, 2010
For all of the excitement surrounding the UK’s general election, its main players have been deeply evasive on the nation’s central question: What to do about the massive fiscal imbalance they’re staring at? Here is how the respected Institute for Fiscal Studies begins its quietly scathing analysis:
“The financial crisis and the recession have prompted a huge increase in government borrowing over the last two years, as the gap between what the public sector spends and raises from taxes has widened to an extent not seen since the Second World War. The Treasury believes a significant part of this increase in government borrowing is ‘structural’—in other words, that it will not automatically disappear as the economy recovers. This means that, in the absence of discretionary tax increases and spending cuts, government borrowing would remain high by historic standards, pushing the government’s debt burden and interest payments onto an unsustainable upward path.
“Confronted with this prospect, the three main parties all accept that a significant fiscal tightening will be necessary over the coming Parliament, and perhaps beyond. Given that this is likely to be the defining task of the next administration, it is striking how reticent all three parties have been in explaining exactly how they would go about it. The Conservative and Liberal Democrat manifestos do not even state clearly how big a fiscal tightening they would seek to achieve, and by when, assuming that the public finances evolve as the Treasury currently expects. And all three parties are particularly vague about the cuts in public spending that they all think should deliver the majority of the fiscal tightening.” [Italics mine]
The consequence is that the next British government, whatever its composition, will take office without a clear popular mandate to do what every potential leader (indeed, all but the most benighted back-bencher) knows needs to be done. Because the campaign has not adequately prepared the people for sustained austerity, every significant spending cut will come as a nasty surprise, and many will evoke fierce resistance. This is not a formula for effective governance in hard times.
I’m not saying this to single out the Brits, because the politics of evasion has infected almost all western societies, including our own. Just about everyone knows that the U.S. government will have to turn toward fiscal restraint, for the simple reason that we can’t keep borrowing a trillion dollars a year (and turning over a total of five trillion a year in public debt) without incurring burdensome interest payments and running grave risks. But almost no one running for office is talking about this challenge in more than vague generalities.
I shudder to think of what will happen when we hit a wall—when the risk premium demanded on U.S. debt begins to rise and holders of capital become less and less willing to finance our structural deficit on terms our economy can afford. The people will feel blindsided and betrayed—rightly so. If you think public mistrust and anger are bad now, just wait. Will our leaders—starting with the president in his 2011 State of the Union address—summon the courage to treat our citizens as adults and level with them about what needs to be done? Our future is riding on the answer.