Are Congress and Obama deliberately embracing the fiscal cliff, even as they jockey for spin?

White House

So do both parties actually want the federal government to go over the so-called fiscal cliff, to slash the budget deficit without having to go on record voting for tax increases and spending cuts?

One gets that impression.

To be sure, in the process the great passive consensus to raise taxes and slash spending is being accompanied by finger-pointing and posturing.  But the spin is just the icing on the cake.  The cake itself is a deliberate, inexorable decision to raise taxes and slash spending with a broad, rough-hewn axe.

And then there is the lame duck issue.  Not only is Obama now essentially a lame duck, and the next Congressional elections as far away as they can be for most legislators, we are into the final weeks before the next Congress is sworn in.  There is a whole subset of Congressmen and Senators essentially putting in time waiting to leave office in a few weeks, having either been beaten in last month’s election or having planned to leave their current seat.  And it is not as if they even have to be willing to vote for the tax hikes and spending cuts.

The politicians in Congress and the White House have found a way to do two of the most politically unpopular moves imaginable, and pretend they did not do it, and vaguely blame each other.

Because of the passive mechanism set up, where the tax hikes and spending cuts are automated, unless they step in, they can raise taxes and cut spending without actually having to go on record doing so.

True, dysfunction has run rife during the Obama administration, unable to even pass budgets to begin with.  Those who got blind-sided with lapses in unemployment coverage a few years ago remember how a political game of “chicken” can drag on mercilessly.

One check on politician behavior, one source of accountability, might have been if the economy really did take a down-turn as a result of the fiscal cliff, with those non-lame duck politicians being held to account for the resulting generalized economic suffering.

But we already saw, in the reelection of Obama, the willingness of large chunks of the electorate to vote against their own interests, for whatever distorted emotionalistic reasons.  So the traditional habits of voters, to hold incumbents to account for bad economic results, seems to have been skewed, even as some voters’ appreciation of actual reality might have been skewed, perhaps by too many hours on facebook or too many morally questionable practices in their personal life leaving them prone to “I’m okay, you’re okay” political manipulation.

At the same time, with leadership by economists — as opposed to pundits, reporters and politicians — notably absent from public awareness, look at what happens if the fiscal cliff occurs.

After years of foot-stomping over the unimaginable level of the national debt, now surpassing national income, amidst fears of the United States going the way of Greece and Spain, with yet another credit rating reduction looming, suddenly the deficit gets slashed almost in half.  The ugly shock therapy occurs, with higher taxes and lower spending, but nobody has to vote for it.

The reality, of course is, they all are voting for it.  The inaction is the same as voting for it.

President Barack Obama is raising your taxes.  Speaker John Boehner is raising your taxes.  Senator Harry Reid is raising your taxes.  And on down the line.  Your Congressman is voting to raise your taxes, and your Senators are voting to raise your taxes.  Even if no vote is recorded, that is what they are doing.

Now, ironically, in the mass media we hear of pat conventional wisdom that “economists” are predicting a hit to the economy.

This point is ironic, because we do not hear who these economists are, or the basis for their reasoning.

But even more so, it is ironic because, in fact, as the country encounters the Second Great Depression, we do not seem to be hearing very much from any economist.

There is no Keynes coming up with a new big idea.  There is no Laffer with a new curve drawn on a dinner napkin.

At least at the forefront of public awareness,there is only politics, and a particularly shallow, attention-deficit brand of it.

Generally speaking, other than some of the Romney ideas embraced by nearly half the country and then forgotten after the election, there has been bland, plain vanilla discussion of reining in spending and controlling taxes from the right, and self-esteem from the left.  The response from the White House to economic scrutiny has largely been, I’m going to feel good about myself, along with, I’m going to forever blame a predecessor, just like an emotionally unbalanced college student forever blames their parents.

But visionary economists? Or simply common sense economists? Actual economists or business leaders, as opposed to politicians with sound bites, or journalists with some catchy prose? There does not seem to be a lot of leadership from economists grabbing the public imagination.

So what is actually going to happen with the shock therapy?

The journalists, citing unnamed economists, apparently hold forth that sucking money out of people’s paychecks, and rolling back federal spending on various items, will represent decreased economic activity.  It would be the opposite of a stimulus package.

But the long-term impact could be that the debt stops skyrocketing.

Although there still would be an increase to the debt.  There still would be a deficit.  The federal government still would be pumping more money into the economy then it was taking out of the economy.

And for the longer term, and the annual deficit would be shrinking.  The federal government would be working back towards a sound footing.

It bears noting that, when the budget has been balanced in the past, it has been the result of largely unexpected increases in economic output, outpacing the expectations that had led to federal spending.  Surpluses were not simply the result of fiscal tinkering.

So some interesting questions are, aside from the taxing and spending, how do we get Americans to get busier engaging in productive activity, and find ways to get paid for it; or, simply find ways to have their quality of life enhanced by it.

Back when one married wage-earner could support an entire family more easily, such as in the early 1970′s, there were tax shelters specifically tied to investment.  Much-maligned complicated tax provisions resulted in airliners not even buying their own jumbo jets, but leasing them from investment syndicates and doctors and dentists looking to take a tax break off the depreciation.

The point is not that we should go back to complicated tax shelters.  The point is somebody actually thought about ways to stimulate economic activity.

 

 


Comments are closed.