The trouble is that both the Tea Party and President Barack Obama have existential reasons to force a crisis. Obama, as I wrote two weeks ago, faces probable defeat with a becalmed economy, and may benefit from a crisis in which he casts himself as savior-in-chief (see Obama could stir a Tea Party crisis, July 19). The Tea Partiers may conclude that no compromise will benefit them, and decide to take the system down in revenge.
There is an underlying economic motive for this confrontation: the cure for the American economy is not necessarily a cure for the majority of the American middle class. The only recovery thus far (and the only recovery possible under the circumstances) has occurred in corporate profits and equity prices.
But this benefits only the small minority of wealthy American families who hold financial assets. The majority of Americans hold most of their wealth in real property (mainly their own homes). They have had no recovery and have no prospect of one. And the quickest path to recovery is one that offers few benefits to them…
Neither the middle-class Republicans who support the Tea Party, nor the core Democratic constituencies who elected Barack Obama, have much of a stake in the outcome of the budget debate. That explains why the debt ceiling has turned into a cliffhanger, to the consternation of financial markets.
What we are seeing here is the disconnection of the prosperity and success of the country with the prosperity and success of a large portion of its population. This is always dangerous. We’ve averted disaster for the moment, but the cuts are inadequate, and there’s more political mischief to come. Both Barack Obama and the Tea Party blinked, because the alternative is the abyss, and neither is sure who’s going to be alive when they hit the bottom.
If the recovery drags out–and that looks to be the case–the desperation may increase, and someone may finally decide to pull the plug. There are plenty more opportunities for that to happen.