Panic at cliff's edge
Thank God for the fiscal cliff. With the election over, the media needed something upon which they could incessantly fixate, and our daily updates on the fate of the cliff-hanger negotiations are plenty of fodder to hold us until we have the final Christmas sales figures to talk about.
But let's take a quick stroll down memory lane to a little over a year ago. At the time, Republicans were using the threat of not raising the debt ceiling limit as a bludgeon to beat the Democrats into submission on the subject of tax breaks for the very rich. Contrary to his earlier vows, Obama caved, the Bush tax cuts were saved, other Republican demands were met, and all that the Democrats got out of the deal was raising the debt limit and a further extension of unemployment benefits. But the Dems were quick to protest that they did get something else; the Republicans promised to negotiate in the future to resolve their differences and come to a budget agreement. Most importantly, we were told, if the negotiations did not succeed, the Democrats had engineered a result that would cut spending across the board (including defense cuts) but which would spare important social programs like Medicare and Social Security. Our own congressman Peter Welch touted the tough terms of the deal, bragging about how it was about time that defense is not to be exempted from the common fiscal sacrifice that we all should be prepared to make. He also was pleased that they had saved Social security and other programs from further cuts.
Fast forward a year and the same Peter Welch was lamenting about what a mistake it would be if we went over the "fiscal cliff" that his once admired bargain was threatening to bring about. In fact, congressional lobbyist largess recipients (CLLR, formerly known as congress members and senators) from both parties were crying out about the dangers of defense cuts of this magnitude, (especially ones that would affect jobs in their districts) and warning that barreling over this cliff would plunge us back into recession or worse. To be fair, some of them, including Welch have recently acknowledged that we could probably survive the economic fallout and indeed use the cliff dive to finally cut the Bush tax breaks for the wealthiest (since the Republicans seem not to have realized that they lost the presidency as well as losing seats in both houses of Congress). But almost without exception, our pols want to avoid this "drastic" measure and instead engage in negotiations to find a compromise agreement.
The Democrats seem to have forgotten that they already forged a compromise agreement, and that the fiscal cliff is the result of already giving in repeatedly to Republican demands that have unnecessarily slowed our economic recovery. During the 2011 negotiations, the Republicans knew that a bird in hand is worth more than any number in the bush, and bragged that they got everything that they wanted at the time. They knew that if/when the sequestration failed and the fiscal cliff was looming into view, they would be able to start negotiations all over again and today they are still issuing the same shrill and wrong-headed demands while the Democrats still wring their hands and search their souls for more compromise victims that they might find in the budget. Already we're seeing trial balloons including cuts and changes to the very programs that we were told were saved by the negotiations that set up the dreaded cliff.
The saddest aspect of all of this play-acting is that the entire concept of the dangers of deficit spending is one that hasn't made sense ever since we went off of gold or silver standards and chose instead to base our currency on the "full faith and credit" of the U.S.government. The world monetary system operates by taking a leap of faith approach in valuing world currencies. Our currency is sound as long as we say it is and as long as our economy is functioning at a level which continues to generate commerce and wealth and investor confidence. So when CLLRs gnash their teeth and rend their hair while crying about raising the debt ceiling, the rest of the world looks on in dumbfounded amazement. We have long established that we have no treasury that actually backs U.S. debts. If the government decides to raise the debt ceiling, it simply does so, and as long as the world still has "faith" all is good.
The U.S., like the banks and corporations that control it, is too big to fail, at least for now.
It's interesting that it was the Democrats who wailed about deficit spending under Ronald Reagan, but the Republicans and the rest of the country ignored them. Now the Republicans are doing the same thing, but they have done a better job of ginning up worries among the general public and are using that leverage to create the sense that this is a much bigger problem than it is. Certainly, we need to balance spending and revenue, but the current debate is all about politics and not about economics. There is a bevy of economists who hold this view, Nobel prize winners Paul Krugman and Joseph Stieglitz among them, but the political caterwauling has drowned out their more measured words.
What to do? Ignore the news for the next few weeks, and if you find yourself wandering in the vicinity of the fiscal cliff, grab a stuffed lemming and toss it over the edge.
Dan DeWalt writes from Newfane. He is also a contributor to www.thiscantbehappening.net.
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