Fiscal cliff deal: same old same old

Stephen B. Young, The Daily Record Newswire

Well, it’s the new year and nothing has changed in Washington. As Norman Orenstein puts it, “We have no governing party” in this country. We have elected officials but no leaders.
They walked right up to the edge of the fiscal cliff and collectively said “Never Mind!” adopting the tried and true survivalism of Scarlett O’Hara – “I’ll think about that tomorrow.” This did not give us confidence in them nor help us usher in 2013 in good cheer.

To use another colloquialism, those we put in national public office to serve the people just kicked our collective fiscal can down the road a bit.

Posturing and game-playing won out in the corridors of national power yet again. Our president did not personally participate in the last-minute concoction of a palliative for our national economic disease. Speaker of the House John Boehner is not on board with Monday’s compromise. President Obama and the Democrats, handed a sop by the Senate Republican leadership, backed off some in their demands that our propertied class cough up more of their wealth for public programs.

Under Monday’s figleaf of a solution, payments to the federal government by all earning $400,000 or more will go up, but not by as much as he wanted. The worker/union vote and consumption spending by them was rewarded with a one-year extension of unemployment benefits.

But, but, but:

The legal amount the federal government can borrow was reached on Monday night. Creative accounting by the Treasury gives our government only two more months of spending power. Another fiscal (actually, political) crisis will hit us in 60 days or so, leaving investment markets still uncertain as to our future.

In Monday’s compromise, cuts to the national defense budget of $110 billion were put off for those 60 days.

The New York Times reported that “the war will continue” between our two national minority parties. The distinctive political reality nationally that Orenstein articulates is that neither Democrats nor Republicans have been able to win over the support of a clear and sustainable majority of Americans.

Neither party has developed the leadership skills to build a majority coalition. Thus, both parties are stuck with playing games and posturing to keep their core supporters happy and the country at risk.

What is our real fiscal problem that our officials should but can’t overcome?

Simply put, it is that the federal government spends about 23 percent of national GDP and takes in about 15.7 percent of GDP. That gap between income and expenses is not going away if current trends continue; it will only go up as Baby Boomers retire and the new health care system comes into force. At some time the national debt will have to be paid down by somebody. But when, and by whom? And how weak will we have become by that day of financial reckoning?

Part of our problem, of course, arises from human nature unrefined by self-discipline. Why pay now when we can pay later? All of us like to postpone difficulties or paying the piper; that is why we are so fond of personal debt, credit cards, and home mortgages.

Part of our problem, too, is that our economy is not growing vigorously. If we could achieve growth of 4 to 5% a year, the gap between federal revenues and expenses would narrow dramatically.
So: what to do?

I am becoming a contrarian in starting to believe that falling off the fiscal cliff might not be so bad after all.

The policies that create the fiscal cliff were designed to deal with our unsustainable gap between federal revenues and federal expenditures. The remedy imposed is simple: Raise revenue and cut expenditures. If we fall off the fiscal cliff, the imposed budget would gore the sacred cows of both Democrats and Republicans. Taxes would go up — anathema for Republicans — but, even-handedly, entitlements would go down — anathema for Democrats.

What’s not to like here? Both parties would be punished for their immaturity and cowardice.

But many would be hurt in losing federal benefits, and the middle class would be hurt in losing spendable income, which would reduce the aggregate consumer demand we need to drive economic growth.

On the other hand, we have to close the fiscal gap somehow. We all — someday — are going to have to pay more to our federal government and — someday — government programs must spend less. Why not bite the bullet now and get used to the new normal?

If we fall off the fiscal cliff this year, a variety of special interests will rise up in fear and indignation and force serious action from the president and the Congress. The people, speaking with many conflicting voices, will authorize both spending cuts and revenue increases. The Simpson-Bowles recommendations for overhauling the federal tax code with low rates and few special interest exemptions (combined with cutting back on entitlements in the out years) will become our model for fiscal prudence.

But one stubborn reality is that the wealth in our economy is not enough to cover the cost of all our desired entitlements. The pockets of all we need to call “rich” are not deep enough to pay for our many publicly funded life styles. Taxing them won’t solve our fiscal problem by itself.

The only sustainable alternative that I can see to over-spending on public entitlements is to stimulate private market alternatives. Those alternatives reduce themselves to two concepts — savings and competition.

Saving now for future expenses puts money aside to be available in our “golden” years for retirement living expenses and health care costs. In the past few decades, under the pressure of Baby Boomer hedonism, we Americans have forgotten how to save. We can unlearn that habit as we unlearned polluting our air and waters and smoking pipes, cigars, and cigarettes. But any cultural change of that magnitude is not easily done.

Another form of savings is education: making an effort today to gain rewards tomorrow. But our education system of public schools and post-secondary colleges and universities is broken; it embodies too much current expenditure with not enough payoff down the road. Education has forgotten how to serve the consumer with learning that leads to employment. It has become a consumption function more than an investment in the future.

Competition in health care delivery is the only certain way to get innovations in care and preventive care and to keep costs down. Consider the pricing curve for un-subsidized cosmetic surgery over the past 30 years – down, down, down.

Competition in education could, in time, bring forward a sustainable economic future for the country. The current obstacles to competition in education are the rent-extracting rules won by teachers – unions in the public schools and tenure for college and university professors. There is very little market competition in the key cost driver of education, so the system has been diverted from its primary social responsibility. It has become a system that mostly feeds itself, an entitlement program for insiders that does not focus hard on delivering results to its customers.

Why are we in such a bind that common sense seems hard to come by?

I think the movie Les Miserables gives us some answers. The play/movie has a stirring song about the red and the black — red stands for progressive action to help the downtrodden and black stands for the dark of ages past. It was the French Revolution that first divided people between an entitlement state on the one hand and propertied classes on the other, between the “left” and the “right,” between the “red” and the “black.” Our politics have become Frenchified since the 1960s.

The germ of the entitlement state was brought forth by the French Jacobin Maximilien Robespierre in his Declaration of Rights of 24 April 1793 when he proposed that:

13: Society is obliged to provide for the subsistence of all its members, either by procuring work for them, or by assuring the means of existence to those who are unable to work.

14: The aid indispensible to whomsoever lacks necessities is a debt of whomsoever possesses a surplus; it appertains to the law to determine the manner in which such debt is to be discharged.

15: Citizens whose incomes do not exceed whatever is necessary for their subsistence are exempted from contributing to public expenditures; the others must support them progressively, according to the extent of their wealth.

Finally, I would hazard a guess that President Obama has undermined his gravitas in letting his vice president, Joe Biden, be the front man for this kicking our collective can down the road for 60 days in order to wave the “red” banner of entitlements against the “black” banner of wealth. I think this posturing on his part nullifies what he gained in last November’s election in claiming to be our nation’s principal leader. I think he has now made himself a wounded duck for the next four years.