It may. The fallout might begin before the actual posited deadline of Tuesday, August 2, 2011 as bond markets downgrade the rating on U.S. bonds, but in the shorterm a default might make Republicans more unpopular and subject to defeat in the next election, at least. For that reason, even a short government shutdown could be a blessing as it will reveal the political polarization that cripples the government and its reason: Republican extremism and wake up the people to this threat. People may see the defending of tax cuts to the wealthy as the reason for the Republican stance on no new taxes and even if it means that the interests of the majority are hurt. The turning point comes if people begin to see the disconnect between growth in the economy and the ability to find and keep a job. The Republicans say that a tax hike will kill off jobs, that would be tenable if the income distribution were more even. Now seniors eligable or collecting Social Security, have seen a huge economic hit and as a block vote more than any other group. If they feel short changed by the Republicans, they will switch parties and force the GOP out.
Longer term, the dollar might collapse in value, and the plutocracy may be able to make good on its plan to rob the U.S. of its wealth and send it to Asia, but that will backfire as American consumerism collapses as a result. This would be proof that collective behavior is a fool's paradise and all the economic theorists are wrong. This might all have a silver lining as the dependancies inside the U.S. become local and the world economy collapses under a depression. Electronics prices may spike, briefly, but the American worker might become suddenly much more compettive and manufacturing might come back here. This may be what the Republican Party thinks is the upside, but it is risky, for without the economic inertia of government spending, the people are even more exposed to the business cycle and world war than before.
Food prices might spike, but people have to eat and food spoils if global distribution of it fails. Farmers might try to hold out to keep inflated export prices and be forced to sell at a lower price to local consumers. America can still feed itself and will be able to for some time.
We might have to suffer for balance to be restored, and inbalance created by Reagan-Bush. This could get very ugly, even resulting in a crisis in the nation, or even Civil War, the Red-Blue War, but we aren't there yet. It could all de-escalate, solved by the restore of balance as the myths of the past 30 years are dispelled. I think there is a large undercurrent of disgust with the current political and economic order which is not being addressed, and an episode of government gridlock could send people into the streets, and I don't know for sure what could come of that.
Judging by the past the worst outcome is a repeat of the 1930's and 1940's in which the Conservative promise is that when investment is unable to do anything worthwhile it leads to destructiveness, to war, to World War. The only problem with that is that now we have the means to easily destroy our selves in the process and confirm the Fermi Hypothesis, so again the stupidity of the unregulated collective ruled by economic thinking and Conservativism.
Time Magazine runs a historically-based issue around Independence Day, this being the 20th annual issue. In it the vitality of the U.S. Constitution was considered, though July 4th is the anniversary of the signing of the Declaration of Independence, a much more radical document. The general point of the magazine articles is that the Framers had no idea what America would become and how change would impact their ideas, some would say, thawart them. To be sure the utopian conception of many of the signers of the Declaration of Indepandance and those who went on to work on the form of government defined in the Constitution was based in a reality that may have been possible in an Eighteenth Century world but is now made obsolete by technologies they could not have imagined, and tradations many of them would have decried. There are some indications of a world to come, of the expansion of the nation, and of the continuing conflict between rich and poor and differing conceptions of economics and national priorities, including the issue of Slavery and its aftermath, which we are still dealing with. The Founders may be incredulous that the Judicial branch has repeatedly stated that Corporations, which wern't important in the early economy, have been given the same protections as persons, and given "Free Speech" as though their voice were no louder than that of an individual person.
On the news tonight the continuing impasse in Congress over the budget; the possibility of a default; of a lack of compromise by Conservatives over ways to make the budget more balanced without raising taxes and the debt limit. Alongside this news, which could have disasterous effects on the world economy, is the report that executives of companies earned almost 20% more while the average worker made barely $200 more in the past year. I am surprised that people aren't more upset about this; that they don't sense the disconnect between what Wall Street and Corporate profits do and their own fortunes, and that the tax cuts being protected by the GOP has much to do with that. I am also surprised that people in this country aren't more astute about economic change left unchecked by Conservative politics is now working very much against the Nation and her people, that know-how and desire isn't enough to answer rigged markets and politicians with vested interests in the disadvantage made to their constituants. It must be that myths about what the economy is, what a Capitalist economy does, what an unregulated market economy does, die hardest.
When the meme is shattered, it is hard to foretell what that would take, all hell breaks loose, and business as usual starts to become dangerous to continue to do. Maybe a default on the National Debt could result in this, proving that Conservatives really do not understand history and its processes. There is a crisis looming, a class war perhaps, maybe it starts with a labor protest in which hundreds of highly valued people get killed, and maybe it starts with kidnappings and killings of the leaders of business. I don't know what, but Robert Reich's scenerio of a Constitutional crisis caused by an Election may trigger it. The point is that there is a sleeping giant of discontent in the American people, maybe as the aspirations of minorities begin to rise; revolutions take place when the hope of people rises, where their fear of being able to survive is replaced by the hope that their long-heald grievances could be addressed by action. That may be the reason that people are dormant now, but a protracted and slow recovery of the economy, coupled by a rigged election, or as Reich says, a discredation of all the candidates, could result in a change where even the sanctity of the Constitution begins to be questioned. It isn't that the central ideas are bad, but that the checks and balances have been thwarted, and traditions have arrisen that have robbed institutions of the ability to respond to events meaningfully. More than anything, this entropy of response, maybe to a Katrina event or some other type of crisis, will undermine people's faith in our institutions, even if they had good ideas for 18th Century circumstances.
The fact that our nation has survived so long is due to the ability to deal with problems, large sources of discontent, within the compass of our Constitution and traditions. This resolution is based primarily on an ability to find compromise, to find room for opposing and diverse views, and to set priorities for most of the people who live in this nation. There have been periods of inbalance, of injustice, often redressed decades later, after long periods of strife, in the past. An optimist will say that we have solved these problems in the past and so we will solve them in the future, too. But this is but a holllow platitude without some insight into how impasses are avoided, and we have a Civil War, in which 650,000 of our fellow citizens died, to prove how painful this can be. But that war and maybe difficulties of the future depend on the absense of compromise in which the beliefs of a few are too tightly held to meet the needs of most. That is why we must consider the shattering possibilities above, that maybe those who lead us have lost the wisdom of compromising.