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What the Super Committee Could Have Learned From Italy

One of Thomas Jefferson’s rules for living was, “Never put off until tomorrow what you can do today.” As an American and as a "cittadino" in the northern city of Bologna, I’ve watched politicians in Washington and in Rome ignore Jefferson’s wise words as they test the patience of their electorates by continuing to spend recklessly.

With the Super Committee’s failure to present a 10-year plan for $1.5 trillion of deficit reduction, lawmakers once again kicked the can down the road even as the national debt surpassed a colossal $15 trillion.

Italy faced more dire consequences as a result of its long-unaddressed indebtedness. Its government collapsed.

Italian bond yields broke the 7 percent barrier two weeks ago, forcing the European Central Bank (ECB) to speed up its purchases of Italian debt to bring Italy’s borrowing costs back down. In the fallout, Prime Minister Silvio Berlusiconi lost his parliamentary majority and had to concede the government to technocrat Mario Monti and his cabinet of appointees.

For Berlusconi, the peak in Italian bond yields culminated a career of putting off dealing with Italy’s fiscal problems until tomorrow to live "la dolce vita" today.

In August, when the European Central Bank (ECB) confronted Berlusconi’s government with conditions on further bond purchases that demanded reform of Italy’s overgenerous pension system and liberalization of its rigid labor markets, "Il Caviliere" continued to make empty promises, and the Italian parliament abetted his procrastination. Raising the retirement age from 65 to 67 by 2026 was not exactly the kind of “immediate and bold measures” then-ECB President Jean-Claude Trichet meant when he told Berlusconi that Italy needed to get its fiscal house in order.

Like Berlusconi, Washington politicians are masters of phony reform. While they decry the “draconian” $1.2 trillion in automatic spending reductions that will take place as a consequence of the Super Comittee’s failure, federal spending will still increase by $1.6 trillion over the next decade, as opposed to $1.7 trillion without the sequester.

While U.S. entitlement spending, at 10.3 percent of GDP, pales in comparison to Italy’s 25 percent, total entitlement spending will nearly double to 18.2 percent of GDP while devouring all tax revenues by 2049, according to a Heritage Foundation analysis. Accounting for most of the Italian government burden are pensions, at 14 percent of GDP, and health care, at around 7 percent, according to the OECD.

Stateside, Social Security and Medicare are the two most expensive and fastest growing entitlement programs. Reforming them faces a level of resistance almost on par with in Italy. Generous retirement and health care benefits are so entrenched in Italian society that two deputies got in a fist fight on the parliament floor over pension reform a few weeks ago. America cannot afford to go down that path.

No plan for deficit reduction will be meaningful unless it fundamentally changes the structure of entitlement programs by at the very least means testing eligibility and indexing the retirement age to life expectancy. But Congress’ track record of taking on spending, let alone entitlement spending, rivals Berlusconi’s for its lack of seriousness.

The Patient Protection and Affordable Care Act (the Obamacare bill), passed in March 2010, was an empty promise at reforming health care entitlements. The initial $940 billion price tag was busted by a February 2011 Congressional Budget Office (CBO) report, which revised its 10-year cost to $1.39 trillion.

The last-minute deal to avoid a government shutdown in April turned out to be a mere $352 million in deficit reduction after compensating increases in defense spending, according to the CBO. That’s less than 1 percent of the already-meager $38 billion in discretionary savings advertised. Entitlements were again left untouched.

Worst of all, the debt-ceiling battle was the biggest opportunity yet to force a painful but necessary restructuring of entitlements. Congress squandered it by agreeing to push off reforms to the Super Committee.

With all the fanfare behind each of these false promises, you’d think American lawmakers had been taking lessons from Silvio.

After years of watching their premier put off necessary changes while entertaining himself with "bunga bunga" parties and embarrassing political gaucheries, it’s no surprise that Italians took to the streets to celebrate his government’s demise. 

Unless Washington lawmakers get serious about deficit reduction, they shouldn’t be surprised if they were to suffer a similar fate.

Matthew Melchiorre is an Adjunct Analyst at the Competitive Enterprise Institute who currently resides in Bologna, Italy. He  blogs at OpenMarket.org.

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