Outsider

Partial attitudes, rivalry and partisanship have always existed and will always be, as pieces of a perpetual negotiation among different constituencies. The rules are set so as to allow the greater good to prevail over conflicting demands, with this greater good evolving over time and under no precise boundaries. What society deems correct today is not necessarily the same as before or in the future. Societies evolve and their ways to agree on certain courses of action too (monarchies most of history, democracies today).

Under the above scenario, impatience and grandiose structural changes are no good advice for the attainment of this greater good for the divisions that they engender and the reactions that are elicited to counter them, imperiling the rules of negotiations and the long term efficiency of their results. Gridlock is usually born – in the extreme, revolution and the use of force – and societies dearly pay for it, particularly when slim majorities allow temporary policy “gains” that probably get overturned in the near future. This is what seems to be happening in the US and what Chile should now avoid.

After dreary years of wars on terror and divisiveness 2008 was the year when the US financial system got into the brink of collapse. The opportune and decisive intervention of the Federal Reserve, led by Mr. Bernanke, avoided the US and the world a deep economic downturn. Both the White House and Congress were overrun by events, including the former administration and the present one. But this last one, alongside with Democratic control of the House of Representatives and the Senate, saw an opportunity out of the financial crisis to greatly shift US policies towards a stronger Federal Government intervention and participation in the economy, including the politically sensitive health sector that represented over 15% of GDP. They were two years of frenzied legislation and government encroachment until midterm elections in 2010 sent a clear rebuking message to the then unstoppable new policy course. Since then, the US government and legislative process have been almost paralyzed. Health legislation, forcing insurance coverage to all under minimum conditions defined by the Federal Government, in theory reasonable, was at the end of this period imposed under the weight of this slim majority, while regrettably not creating a nationwide competitive market, not ending the dependency of health plans on jobs and not considering the whole range of health programs to work together – Medicare and Medicaid included -. Three years later the result has been disastrous and the law may well get repealed when circumstances allow. To make matters worse, Democratic controlled Senate has just ended filibuster rules historically designed to accommodate differing views with the minority and the Republican controlled House of Representatives has few intentions, if any, to work together with Democrats. And neither does President Obama with Republicans.

An institutional tragedy fell upon the US and whose blame touches all, but whose kick off action belongs to Democrats Obama, Reid and Pelosi who at the White House, Senate and House of Representatives respectively jointly pushed policies beyond what they were voted for. The world has already taken notice and the US has been economically and politically weakened as a result of this.  Were they really looking for this outcome? Why not cross the aisle and get consensus with the other half of the country?

The next table shows US Federal Government financial accounts trajectory before and after 2010, when gridlock strengthened. As for State and Local Governments, public finances have been pretty stable from 2008 to 2013, moving around 14% of GDP in expenditures and having manageable deficits around 1.5% of GDP.

The 19% jump in Federal Government expenditures in 2009 and 2010 was not intended to be temporary; after 2010 Republicans held off its absolute size, slowly reversing its increased relative weight in the economy from 25% in 2010 to 23% of GDP today. The lackluster US economic growth and employment figures since 2009, even considering expansionary monetary conditions, are partly to be blamed on this dysfunctional set up that impairs economic growth, notwithstanding an unexpected shale gas and energy revolutionary development under way before these events took place.

In the case of Chile, recent presidential and parliamentarian elections have shown a majority not interested in structural changes, not even a new constitution. If the expected to be left oriented government – runoff election in December 15th – tries to forcibly overstep into the other half of the country that would be not only damaging to long term development perspectives but blind to Chilean history back in the 70´s when one third tried to impose its will on the other two thirds with forgettable results. Or blind to recent US history.

In the end, there are no short cuts to development; there is no long term growth and stability unless majorities on both sides of the aisle point roughly in the same direction; trench political warfare works for no one and modesty, realism, unbiased history interpretation and no foreknowledge pretense hurt no one.

Manuel Cruzat Valdés
November 25th, 2013

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