The bad news isn't getting any better. From Real Clear Markets we get this:
A double-dip in home prices, pessimistic consumers and a slowdown in regional manufacturing raised concerns on Tuesday that the economy's soft patch could become protracted.
It isn't getting any better elsewhere either. From Robert Samuelson:
A year after rescuing Greece from default, Europe is staring into the abyss. The bailout has proved insufficient. Greece needs more money, and it can't borrow from private markets where it faces interest rates as high as 25 percent. But Europe's governments are reluctant to advance more funds unless other lenders -- banks, bondholders -- absorb some losses by writing down their debts. This, however, would constitute a default, risking a broader banking crisis that might torpedo Europe's fragile recovery in France, Germany and elsewhere. There is no easy escape.
It isn't getting any more mysterious. All over the developed world, governments have overspent, over borrowed and overpromised. This has been obvious for decades. The parties of the left and the right, in America and elsewhere, share the blame.
The solution is no more elusive than it ever was: the only cure is to reduce spending, pay down debt, and adjust our expectations to conform to reality. It would not be unreasonable to object that doing any or all of this in the short term might further depress economic growth, and thus make the problem worse, were it not for the fact that we are right now exceeding a trillion dollars in deficit spending each fiscal year. If that is our economic strategy, it isn't working.
Even if radical cuts in spending are something we can't afford just now, surely we could afford a plan for gradually climbing out of the hole we are in. To be sure, any plan that deferred actual pain would be greeted with skepticism by the markets and by the electorate, but at least it would be a plan. As I observed, the Democrats not only refused to offer a budget but also refused to even consider the President's previous budget.
Now the House has rejected an unconditional extension of the debt limit. From The Hill:
The vote was 318-97, with 82 Democrats joining every Republican in rejecting legislation that would have authorized $2.4 trillion in additional borrowing by the federal government. Seven Democrats voted present on the legislation.
I sort of admire the seven Democrats who voted present. At least they were willing to go on record to say that they have absolutely nothing to say.
The root of the political problem is a clear as the root of the fiscal problem: invincible ignorance. I offer here one example on a related topic. From Elliot Cohen at Real Clear Politics/Washington Post:
"Counter to the prevailing expectation that crime would increase during a recession," it actually dropped last year and violent crime is now at nearly a 40-year low. So said The New York Times last week. But what the Times did not report is precisely why it was so surprised to learn, yet again and probably not for the last time, how the "prevailing expectation" is maybe limited to people who think as did Marx (Karl maybe, Groucho for sure) that money is the root of all evil. On the contrary, evil is.
We don't know for sure what causes crime rates to go up or down, but we know for sure what doesn't. It has been clear for decades that widespread economic stress does not lead to an increase in the crime rate, nor does generally increase prosperity reduce crime. The New York Times is surprised again and again because its ignorance is imperious to information. The Times is wedded to the assumption that the root cause of crime is want. The Times, and the political culture it represents, is incapable of seriously questioning that assumption.
That same invincible ignorance was evident in the creation of the Euro. It is evident in the Times' vociferous opposition to any significant reduction in our social programs. Real cuts are coming, one way another. The Times, and the political culture it represents, cannot bring itself to face that. That is why the Administration and the Democrats in Congress can't produce a deficit reduction plan or even a budget. Granted, they are playing for the next election; however, given current economic realities, winning that election might be the worst thing that could happen to either party.
Republicans can take some measure of comfort in this. It confirms their long held views of government and economics. That is cold comfort, however, for two reasons. One is that Republicans spent like drunken sailors when they controlled Congress and the White House. Like Caesar's blood, the red ink is all over their togas. The other is that being right is very bad when you are right about bad things.