Thursday, November 15, 2012
A bump in the road
The pundits and politicians are hyperventilating about “the fiscal cliff” as if the end of civilization is at stake. It’s not a cliff at all – more like a pothole. The Federal Government has been spending more than it brings in for generations. As part of a bipartisan agreement in August 2011 Congress and the President agreed to raise the so-called ‘debt ceiling’ to meet the ongoing spending deficit only if certain ‘draconian’ cuts kicked in starting in 2013. The theory was that the cuts would be so unpalatable politically that the politicians would have no choice but to compromise. It’s these very cuts that Congress and the President agreed to that they are now saying are going to destabilize the western world and the global economy which is, of course, not quite true.
The approx. $1.2 trillion in automatic spending cuts and the expiration of the Bush-Obama tax breaks to the rich would have a significant impact on the U.S. economy if they all happened at once, which is the implication that is in the discourse about this subject. It’s not all immediate. It’s over 10 years. And many of the changes don’t start for several years.
Think of it this way: You have to come up with $10,000 right now. That’s a huge amount of money. Now consider coming up with that same $10,000 – but over ten years. That’s $1,000 per year. That’s $83.33 per month, or $2.84 a day. Can you come up with $2.84 a day? That’s a much more likely scenario than coming up with $10,000 tomorrow and it changes what you would do significantly.
The political and media narrative is at a near panic level that a compromise has to be figured out for the proverbial $10,000 – not agreement on how to find the $2.84. Who benefits from such obfuscation? The media – because they have another simple narrative to report on – with a clear pro/con argument, and the use of the hyperbolic descriptor “fiscal cliff” implies danger.
The United States is $16 trillion in debt. The Obama policies have contributed nearly a quarter of this, but the debt has built up over a long period of time --- all with the Congressional approval. When in session 13% of Americans approve of the job they do – when out of session 21% approve. The waters get even muddier looking at last week’s election results. Only 5% of Congress lost their seats in the 2012 election – 10 Democrats and 15 Republicans – out of 435 seats. How can 13% of Americans approve of the job Congress does yet return 95% of them to their job? That's another blog...
The automatic cuts of $1.2 trillion spread over 10 years are $120 billion per year. The 2012 US budget had $3.96 trillion in spending. Taking $120 billion out of that spending is 3%. If the United States goes off a cliff for 3% of a budget that runs at a deficit 10 times the proposed cuts, then we may have to rethink the whole math thing. It’s not a cliff – it’s a bump in the road, and the way to navigate it calmly driving through it.