Why Political Fight Over Budgets in the United States and Elsewhere is Meaningless

The Upcoming Debt Ceiling Fight

The upcoming debt ceiling showdown in the United States looks to be turning out to be increasingly bitter between the Republicans and the Democrats. While the Democrats want the Republicans to agree on tax hikes for the rich, the Republicans want the Democrats to agree to spending cuts across the board for welfare programs. While the merits and demerits of their respective positions can be debated, the bottom line is that these political fights are meaningless in a world of no growth and high inflation.

This double whammy of declining growth and high inflation because of rampant money printing by the Federal Reserve hits the common person more than anyone else. Hence, adding to the burden by withdrawing social security and social welfare schemes is like dropping a bombshell on the people who are already suffering. Further, as mentioned earlier, when there is no growth and the only way to stimulate the economy is through quantitative easing or printing of money, the situation becomes dire as this results in the debasement of the Dollar and high inflation.

Situation around the World

Elsewhere in the world, this theatre of absurd is playing out in different ways. In Europe, the heavily indebted nations are resorting to austerity and taking on more debt to repay existing debt. The politicians in Europe are punishing the people through these measures as well as bail-ins or making the depositors pay for bank failures.

In Asia, countries like India and China need to grow at more than 5% or more every year if they have to avoid social unrest and collapse. Therefore, the policymakers in both of these countries and others in Asia are desperately trying to kick start growth. The point here is that the irrational exuberance that characterized the economies of the world during the 1990s and the 2000s have resulted in lot of debt being created and the people of the world getting accustomed to easy life and consumerism. Therefore, as the debt comes due and it has to be repaid, the people are realising that the good times are over and this leading to a sense of disappointment and frustration at the policymakers. Further, in a world where speculation and financialization are preferred over actual and real growth, the result is a situation where phantom wealth is created and where the actual wealth diminishes because of inflation and debasement of the currencies.

The Root causes and how to address them

Now that we have discussed how the political fight over austerity and reduction of social spending is panning out, it is time to look at the underlying causes.

First, in a world of declining resources, growth is not possible at the rates that we have become accustomed to. The point here is that infinite growth is not possible in a finite world where resources are limited and depleting. Therefore, how much ever the politicians try, they cannot actualise growth without addressing the root causes and the underlying factors.

The message that people have to live sustainably and within their means has to be broadcast across the world. However, this inconvenient truth does not fetch votes and hence, we are in a situation where we are chasing phantoms at the expense of actual and real growth that can only be a lot lesser than what is being predicted. This is the key theme that this article discusses and the main point of this article is that uncomfortable and tough truths have to be faced without resorting to fantastical notions of everlasting growth and prosperity.

Concluding Thoughts

Finally, the fact that the elites in many countries have realized this key point and have prepared accordingly is leading to a lot of heartburn among the masses. Therefore, there is a need for a honest and a genuine attempt to win back the masses that are frustrated and angry at the turn of events.


❮   Previous  Article Next  Article   ❯


Authorship/Referencing - About the Author(s)

MSG team comprises experienced faculty and professionals who develop the content for the portal. We collectively refer to our team as - “MSG Experts”. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.

International Business