Inconvenient Truths for the U.S.

The choice for the United States is simple: Either raise taxes (perhaps through a federal value added or sales tax) or cut mandatory spending programs, which is extremely unpopular (given that two-thirds of U.S. spending falls in politically untouchable categories including Social Security and Medicare). 

On the road to fiscal (self-)strangulation?

If the United States does not address its budget deficit, interest on its debt will continue to mount, as will U.S. interest rates as investors gradually lose confidence in the United States and the U.S. dollar.  Fiscal strangulation will result.

Superficial cures, like attacking the trade deficit, will not cure the underlying addiction. Congressional overindulgence in the form of deficit spending is a leading cause of the U.S. trade deficit.

Like a man standing in a bucket

To paraphrase Churchill, raising tariffs to reduce the trade deficit “is like a man standing in a bucket and trying to lift himself up by the handle.”

Attacking the trade deficit by raising tariffs will only produce inflation, which will lead to higher interest rates, a stronger dollar and reduced demand for U.S. exports.

If the United States wants to reduce its trade deficit, it should begin by living within its means and reducing its national debt.

Poor policy planning for decades

It is politically easy, as the Republicans always do, to scream deregulation and to argue that the free market will solve all problems. That often just means trying to avoid dealing with the real challenges in the real world. 

For example, it was evident that high U.S. wages and low tariffs would imperil low value-added manufacturing jobs in sectors such as textiles, shoe production and simple assembly work. 

The “Just help yourself” society

Congress and state legislatures failed to deal with these realities. Once factories closed, workers without sufficient education, skills and mobility were left jobless.

Worker retraining programs and other initiatives could have enabled displaced workers to enter other fields. Alas, they were often not even established, usually due to Republicans blocking them in Congress.

Obviously, jobless consumers consume less and grumble more, leading to the democratic discontent that now imperils the health of the nation.

The failure to plan ahead

The failure to plan ahead has also affected U.S. workers in its coal and steel industries. Just consider that fracking produces environmentally cleaner and economically more competitive natural gas which continues to displace coal as a fuel. 

Instead of dealing with that reality, political pledges to save the coal industry, based on the claim that it failed due to overregulation, are both populist and spurious.

The same argument holds true for the steel industry where jobs decreased due largely to mechanization and high wage packages.

The Trump factor

Meanwhile, the Trump administration’s policies  are endangering the values that made the United States great.

Much of the United States’ success has been built on the backs of talented immigrants who benefitted from U.S. educational opportunities and its entrepreneurial culture.

The present administration has undermined the United States’ ability to attract gifted immigrants, and it is now attacking the U.S. educational system — another marvel that made the United States great.

Regrettably, many Republican members of Congress have fallen in line with an authoritarian administration that has chosen to undermine scientific institutions, independent media, universities, trade agreements, social programs, international alliances and, in particular, equality, public health and democracy.

Inequality is an inducement to populism

But there is method to the (Trump) madness.  Inequality is an inducement to populism — and a key indicator of popular discontentment with the U.S. political process.

Inequality obviously threatens the American dream and is leading to the slow death of the nation as we know it.  But the Trump team is keen to exploit that stark economic reality for its own corrosive political purposes.

Just look at the numbers

The World Bank’s poverty and inequality platform, known as the Gini Index, is an excellent indicator of the growing inequality in the United States.

The United States ranks high on the unequal distribution of family income. Its poverty rate is the second highest among OECD countries — with 11% of Americans (approximately 38 million) living in poverty.

Looking deeper, the OECD estimates that “The average relative poverty rate (i.e., the share of people living with less than half the median disposable income) was 11.4% in 2021 for the OECD countries.

Poverty rates were highest in the United States (18%) and Costa Rica (21%), while in Czechia, Denmark, Finland, Hungary and Iceland poverty affected only 5-7% of the population.”

Those inequality numbers fuel discontent and populism and threaten the stability of the United States.

The erosion of the U.S.’s democratic values

Finally, the erosion of the United States’ democratic values is having profound domestic and international implications that are affecting the health of the country.

Much of the United States’ business success has been built on fiscal and political stability. Both rest in large part on the country’s democratic values, its (formerly) less partisan judicial system — as well as the U.S. Constitution’s separation of powers. 

The Trump Administration’s increasing disregard for judicial decisions and the Constitution are undermining confidence in the United States as a place to do business. 

Lessons for Europe

Giving national values a real meaning means overcoming the U.S. history of de jure discrimination and reinforcing the Declaration of Independence’s proclamation that all men are created equal — regardless of race, sex, economic status and religion (or lack thereof).

Evidently, some of the problems affecting the United States are also present in Europe where deficits are growing, competitiveness is waning and democracy is under threat by far-right actors.

Europe would be well-advised to take seriously the challenges posed to democracy in the United States and immunize itself accordingly.