Can democracy solve the West's economic problems?

by Michael Schuman

Time
August 3, 2011

The tumultuous events in the U.S. and Europe over the past few days have highlighted a sad reality – political paralysis has become a primary hurdle to solving the West's economic woes. In the U.S., the unsightly and embarrassing squabble in Washington over an arrangement to raise the government debt ceiling exposed American politicians as being too worried about personal political gain and ideological talking points than actually strengthening the sagging U.S. economy. The threat of a national default, and potentially global economic chaos, was enough to force a compromise only as the seconds counted down to disaster. Meanwhile, in Europe, the failure of the euro zone's leaders was put on grim display yet again as borrowing costs for Italy and Spain surged to new euro-era highs – and levels close to which Greece, Ireland and Portugal had to seek EU rescues. The zone's latest attempt to save the euro – the second bailout of Greece – has quickly proven to be yet another short-sighted effort, unable to calm short-term uncertainty let alone resolve Europe's destabilizing debt crisis. If Spain and Italy require similar bailout programs, we'd really have to question if the monetary union could survive. The world's investors showed how all of this inaction and uncertainty is clouding the outlook for the global economy by dumping stocks from Tokyo to Wall Street.

The core of the political problem on both sides of the Atlantic is the same – the demands of electoral politics in a modern democracy. In the U.S., both Republicans and Democrats took positions in the debt debate aimed at protecting their loyal voters. For the Republicans, that meant resisting tax increases on their rich supporters; for the Democrats, rescuing middle-class entitlement programs and welfare spending from Tea Party budget butchers. In Europe, political leaders like German Chancellor Angela Merkel make decisions on how to fight the euro crisis with one eye on voters back home. In other words, the politicians of the West are choosing the narrow interests of electoral victories over the greater, long-term good of their nations. Rather than focusing on closing deficits, improving economic competitiveness or forwarding the dream of European integration, they're looking no further than the next vote count.

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