The United States debt and deficit situation is a train wreck that Americans don’t want to watch but can’t look away from. It’s common knowledge that if you spend more than you make, you’re barreling down the road to bankruptcy. Running a deficit is a symptom of fiscal irresponsibility, and the U.S. has a bad habit that’s proven tremendously hard to break.
But you can’t fix problems by ignoring them, and policymakers and market participants have been forced to address the debt and deficit situation. Years of deficit spending, punctuated by the enormous costs of the financial crisis, have pushed America’s economic position from stability to uncertainty. The national discussion is not “How do we remain strong?” but “How do we avoid disaster?” and the impact of this conversation alone — let alone the hard reality of the federal financial situation — is economically destructive.
The evidence of this is the far-reaching effects of economic policy debates in Washington. The markets are sensitive to high-stakes legislation and eleventh-hour deal making, highlighted by the fiasco that pushed the country right to the brink of the fiscal cliff. Prolonged indecision and uncertainty about the future tax environment and government spending plans is a weight on businesses, which need at least a modicum of stability in order to make decisions — like whether to spend money, grow, and move the economy forward.
Whether or not America is on a road to growth is a gambit, not a certainty, and the financial crisis has fueled attempts to cast light on the economic environment and the road ahead. The only way to curb uncertainty is to gain understanding. Unfortunately, a new line of economic research on sovereign debt tipping points, born out of the European crises and immediately relevant to the U.S., offers an unattractive interpretation of which road we’re on…