A brief follow up comment on yesterday's post, Budgets, debt ceilings and the need for a US shock. I generally try to avoid posts that are expressions of opinion without any real analysis. But as I watched the Republicans who had passed the bill line up for a photo shot and the obligatory expressions of triumph, I was struck by the apparent disconnect between their domestic triumphalism and some of the flow-on effects of their actions.
Here in Australia have complained about what I see as the growing tendency of Australian Governments to take actions and express views driven by domestic concerns oblivious to the flow-on effects beyond Australia's borders. Refugee policy is a case in point, with yet another aspect of that policy apparently causing disquiet in Djakarta.
Past Australian Governments have generally been sensitive to the realities of this country's size and international position, avoiding or at least limiting domestic political myopia. The US is so much bigger and so much more powerful, increasing the importance of the narrow domestic view.
The day after the last Australian elections had I had to complete the economics column I write for Business Solutions Magazine. This is always slightly complicated, for I am writing on current economic conditions with a print lag that can run to weeks. This creates a real risk that new developments may invalidate my analysis even before the column appears in print. So far so good, but its a bit nerve-wracking.
US developments are obviously important to my analysis and herein lies a problem. While I am generally comfortable with my overall analytical framework and try to avoid specific forecasts (my knowledge of the immediate tea leaves is no better than anybody else's), US policy and politics introduces a remarkably random element into the whole analysis. It's not just the vagaries of quantitative easing, I understand those, but the way that the US game of fiscal chicken can have direct impacts on the real economy that flow on.
If you think about it, its quite remarkable. Here in Australia we complain about budget vagaries. We criticise Treasury's inability to get its budget forecasts right. But we do have a budget that provides a starting point for analysis. The US, the largest economy in the world, does not. The US doesn't have a coherent economic policy, it limps by. That is why I wrote;
I know that this is a bit like welcoming the equivalent of an economic H bomb, but I kind of hope that the US Congress fails to avoid either a Government shut down or a lift in the debt ceiling. The US system is important globally on many levels, but I just don't think that it's working in political or policy terms.
No doubt they will muddle through as they have done in the past. This problem has been around for a long time, long enough to feature in an economic chicken episode in West Wing. This made compelling viewing as drama, but was also depressing from an economic policy perspective. If the US were to hit the fiscal and debt cliff there would be pain. But just maybe, the various players and satrapies that dominate the US system might then be given a reality check.