US politicians don't deserve derision for just doing their jobs

US politicians might have done just about enough to convince debt markets its credit is still good.

These days, the US media are full of ordinary Americans venting their rage at the incompetence and immaturity of their politicians.

Even though the US government's debt limit was raised in the nick of time, the process was - and remains - fraught with risk. Why, the public asks, can't politicians sit down together like sensible adults and come up with a timely agreement that commands broad consensus? If we can balance our household budgets, they ask irately, why can't our political leaders?

The reality, though, is that US politicians reflect the views of the US electorate - views that are fundamentally inconsistent. The absence of broad consensus is no wonder. Indeed, the last-minute agreement to raise the debt ceiling is proof the politicians did what they were sent to Washington to do: represent their constituencies and only compromise in the interests of the country as a whole.

The key question is whether the political gridlock exposed by the debt-ceiling debate will worsen in the run-up to the presidential and congressional elections next year - if not beyond. That is possible, but we should not overlook cause for hope in what US politicians have just accomplished.

Let's start with why the electorate is so polarised. There are two key divisive factors: income; and age. Income inequality has been growing in the US over the past three decades, largely because the labour market has increasingly demanded skills the education system has been unable to supply. The everyday consequence for the middle class is a stagnant paycheck and growing employment insecurity, as the old economy of well-paying low-skilled jobs with good benefits withers away.

Until the financial crisis, the easy availability of credit, especially against home equity, enabled the middle class to sustain higher consumption despite stagnant incomes. With the collapse of the housing bubble, many people lost their jobs and health insurance, risked losing their homes, and suddenly had little reason for economic optimism. The response from Democratic Party, which has traditionally represented this constituency, was to promise affordable universal health care and more education spending, while also protecting government jobs and entitlement programmes.

When added up, such spending is unaffordable, especially with current federal revenues at just 15 per cent of GDP. The solution for many Democrats is to raise revenues by taxing the rich. But the rich are not the idle rich of the past; they are the working rich. To balance the budget only by taxing the rich will require a significant increase in income taxes, to the point that it would lower incentives for work and entrepreneurial activity considerably.

This is not to say taxes on the rich cannot be increased at all; but such increases cannot be the primary way of balancing the budget. Republicans, trying to give voice to many working Americans' ambient uneasiness with rising government expenditures, as well as to the growing anger of the working rich, find it easier to defend a principle than a particular constituency. Hence their mantra: no additional taxes.

The neat divide based on income is muddled by the elderly. The elderly are politically active and powerful. Not only do many defend their entitlements to social security and medical aid strongly; some oppose growth in other types of public spending for fear it will weaken the government's ability to pay for the benefits they believe they are owed.

These then are the roots of US fiscal impasse, which has produced passionate constituencies viscerally opposed to compromise. Any political deal significantly before the debt-ceiling deadline would have exposed politicians to charges of betrayal from their constituents. And, given Barack Obama, the US president, would ultimately be held responsible for a default, he needed the deal more than the Republicans did. So he had to coerce his party into accepting a deal full of spending cuts and devoid of tax increases.

Will the deal deliver what it promises? A bipartisan committee has to propose US$1.5 trillion (Dh5.5tn) in deficit reduction by the end of this year, and Congress must either accept that proposal, or see immediate, politically painful expenditure cuts, which would include defence spending - an area that US Republicans care about strongly.

If this structure works as advertised, Congress will be forced to reach a compromise. This time, Democrats will be on a level playing field, because both parties will be held equally responsible for a failure to reach a deal.

Ultimately, the big decisions on curbing entitlement growth and reforming the tax code will probably have to wait until after the next election, giving the divided electorate an opportunity to reflect on its own inconsistency. In the meantime, US politicians might have done just about enough to convince debt markets its credit is still good. For that, Americans - and others around the world - should stop pillorying them and give them their due credit.

Raghuram Rajan, a former chief economist of the IMF, is professor of finance at the University of Chicago's Booth School of Business and author of Fault Lines: How Hidden Fractures Still Threaten the World Economy