In the past few weeks, the American political and economic infrastructure has experienced some serious blows. Democrats and Republicans in the White House and Congress spent weeks debating a compromise on the defecit and debt ceiling. In the end, they landed on a compromise that is neither substantial nor popular and was signed into law mere days before the impending default of the United States on its financial obligations.
A few days after this compromise was reached, Standard & Poor's, a credit rating agency, announced that it had downgraded the United States' bond rating from AAA--the highest possible rating--to AA+. S&P stated in their decision that they were "pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabalizes the government's debt dynamics anytime soon." While S&P's credibility is in serious question due to their actions during the financial crisis of 2008--a story for another time--the effects of this downgrade have reverberated through the world economy. In the last four days, the Dow Jones Industrial Average has wildly fluctuared from a high of 11,462 to a low of 10,687 with many peaks and valleys in between.
The question now becomes what is Congress and the president to do? Both parties, and President Obama specifically, have announced a pivot from the debt debate to jobs, although this announcement has been made many times before. While Obama will embark on a bus tour of the Midwest on Monday with stops in Minnesota, Iowa and Illinois, he will then begin a 10-day vacation in Martha's Vineyard with his family. Congress meanwhile is out of session until September.
Criticisms of Presidents for taking vacations and members of Congress for scheduled recesses are always overstated. Political leaders--the president in particular--are never truly on vacation. They have the technology and the wherewithal to conduct most items of business and make necessary contacts from any location. That being said, our political leaders face two challanges resulting from this schedule.
First, there is an image problem. Politicians came out publicly after finalizing the debt ceiling compromise and announced that jobs would be the new priority. Members of Congress subsequently left Washington and returned to their district. The reality of our political world is that little if anything could actually have been accomplished during the month of August had the members of Congress remained there; however the image of the recess is one of Congressmen and women exhausted from a self-inflicted conflict over the debt ceiling going on vacation while the unemployment rate remains above 9% and the stock market seemingly rises and falls on a whim. Image may not be reality, but image is integral in the business of politics.
Second, there is an economic reality problem. As I stated, theunemployment rate stands at 9.1% while the actual unemployment is upwards of 16%. In real terms, approximately one in six Americans is out of work and as is often the case, the brunt of the burden has fallen on the most vulnerable. Poor and lower-middle class families, African Americans, and even teenagers have had the most difficulty in finding employment.
Government does not hold the silver bullet, the magic potion that can fix the economy and return unemployment to a more manageable level. But it does have the ability to influence economic activity. There are compromises on which Democrats and Republican could potentially agree; a great bargain of economic stability. These could include the extension of the payroll tax cut, extension of unemployment benefits, tax reform, allowing corporations to bring overseas money back to the United States without a tax burden, and many other possible solutions.
These may not solve the problem but they would be a step in the right direction. Merely cutting government spending will not stabalize the economy and put us on a path towards consistent and substantial growth. Our government must take further steps; all we need now is leaders who are actually in Washington and who have the political will to take a stand.
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