Threatening to shut down the government or refusing to budge on taxes is seen by many Republicans as a legitimate maneuver in their campaign to shrink the state, rather than as something that could undermine the United States’ economic recovery and destabilize the world. This approach is more than unfortunate, because the perception of our indefinite preeminence – irrespective of how we act – is at completely odds with the historical record. In his widely acclaimed book, “Eclipse: Living in the Shadow of China’s Economic Dominance,” Arvind Subramanian places the rise of the dollar in its historical context and documents how economic policy mistakes, World War II and the collapse of empire undermined the British pound and created space for the United States dollar to take over as the world’s leading currency.Indeed, while the risk of China's rise to the level of the US in terms of gross economic output is a distant problem, perception is often reality in finance. If the world believes that America is no longer able to govern herself through the machinations of the know-nothing Republican Party, then we may very well face this crisis sooner than expected.
The point is not to make precipitate adjustments but rather to increase revenue and limit spending in a reasonable manner over the next two decades.
But this is not going to happen. Congressional Republicans will refuse to consider anything they regard as a tax increase, and the fiscal cliff is likely to become a repeat of the debt-ceiling fight last summer, which ended up making everyone in Washington look bad.