Half a generation ago a Wall Street Journal editorial declared Canada an “honorary member of the Third World.” The shock of that scolding helped return a country that had begun to think of itself as ungovernable back to fiscal and economic sanity. Might a similarly sharp rebuke from its friendly northern neighbour aid in turning an apparently increasingly ungovernable United States back to sanity? Probably not. But we would feel bad for not trying: This summer’s disgraceful spectacle of a U.S. political system seemingly incapable of addressing the country’s dire fiscal condition makes the United States worthy of honorary banana republic status — with the rider that a banana republic that takes chances with the world economy gives bananas a bad name.
In fact, the U.S. fiscal deficit, at more than 10% of GDP, is already much higher than markets will typically allow the average Third-World deficit to go. The only reason the United States can borrow so much is that for at least a century the world’s lenders have considered the “full faith and credit” of the U.S. government to be as good as gold, sometimes better. But now American politicians are toying with their country’s heretofore sterling reputation — a reputation that in fact eclipsed sterling’s — so as to avoid political responsibility for budget compromises that anyone who does not draw a paycheque from Washington politics can see must be part of any final agreement. This they do in the apparent but obviously misguided belief that if their country’s reputation goes, their own can somehow survive.