November 11, 2012
“Old truths have been relearned; untruths have been unlearned. We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays. We are beginning to wipe out the line that divides the practical from the ideal; and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world.” Franklin D. Roosevelt, Jan. 20, 1937, in his second inaugural address.
It was heartening to read this week that most of the Tennessee Congressional delegation is warming, albeit slightly, to the necessity of working across the aisle to address the looming “fiscal cliff.” And Speaker John Boehner too expressed a “willingness” to negotiate.
But it has been disturbing to read the various pundits, including respected ones like Nobel winner Paul Krugman, saying President Barack Obama should not worry about taking the plunge over the cliff. Brinksmanship is what got us to this point, so we should urge both sides to imagine the impact of that plunge and exercise a little leadership. The concept of Mutually Assured Destruction is one that I thought we had ushered out with the fall of the Berlin Wall.
Personally, I needed to refresh my battered brain on what Congress is facing, and what may result from an inability to act.
The Jan. 1, 2013, “cliff” is a series of tax increases (actually rolling back the George W. Bush tax rate cuts and the Obama-led payroll tax reductions) and automatic spending cuts (also called the “sequestration”) to discretionary spending (military being a significant component). The combination of cuts and tax increases were crafted to be deliberately crude and unpalatable as part of the Aug. 2, 2011, Budget Control Act that temporarily resolved the financial crisis caused by a rare fight over lifting the U.S. debt ceiling. The rationale was that such an approach would force Congress to work together and come up with a, if not elegant, at least thoughtful, plan that would set the country’s fiscal house on a path toward sustainability. The act established the Congressional Joint Select Committee on Deficit Reduction (nicknamed the “super committee”) to negotiate a budget plan that would accomplish that.
The “super committee” goal was to develop a ten-year plan that would reduce spending by $1.5 trillion and prevent the sequestration of spending and have Congress vote up or down, no amendments or changes, by Dec. 23, 2011. On Nov. 21, the committee adjourned and issued a statement: "After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline." Happy Thanksgiving 2011, citizens, from your elected representatives.
On Jan. 30, 2012 Congress was forced to raise the ceiling on federal debt holdings to $16.394 trillion from the Budget Control Act’s increase to $14.294 trillion. They had to; the national debt was already kissing the previous ceiling. And, whether Democrats follow the bad advice of accepting sequestration, or the two sides sit down with a purpose of negotiating a solution, Congress will have to bump the ceiling up again.
The Democratic pundits are trying to spin that the effects of a plunge is over-wrought, we hear voices saying, “it’s not a cliff; it’s not too bad. Go ahead force the Republicans, give them some of their own medicine.” Those kind of rhetorical bombs will do nothing but incite Republican pundits to exhort their base to respond with similar threats of brinksmanship.
But you won’t find many economists that see the tax cut expirations and automatic spending cuts doing anything but stalling, if not reversing, the incipient recovery. The Congressional Budget Office estimated a reduction of four percent in Gross Domestic Product.
Here’s hoping that we can remind our representatives that we are more concerned with those folks who are looking for work, who want a better job, and who need Washington to fix its fiscal mess, than we care about who “wins” the negotiation. We should send the message to our representatives that, of course, everything should be on the table for negotiation, entitlements, taxes, deductions, defense spending … how else can we expect you solve the problem.
So thank you to those who offered a post-election little glint of light.
(That wasn’t a train whistle I just heard, was it?)