The Fiscal Cliff: A Phony Crisis Manufactured in Washington

As everyone knows by now, Congress completed their work on the fiscal cliff legislation.  And as they say, “It’s a real piece of work.” Of course, they only did this after taking care of their most important order of business, working with the President who raised salaries (now suspended for two months) for, the Vice President, everyone in Congress and a few other government luminaries.

Call it what you will, the fiscal cliff crisis was unnecessary and entirely manufactured in Washington.  And another, bigger crisis will be looming over us when the debt-ceiling limit is reached in just a few short weeks.  We will replay the entire thing all over again when the Republicans ask for the promised specifics on spending reductions and the President decides, instead, to squeeze for more tax revenue.  President Obama is largely responsible for these crises because he cannot stop campaigning, and the congress cannot stop spending. We’re reminded of Barbara Gordon’s harrowing 1979 memoir, “I’m Dancing as Fast as I Can,” the true story of a Valium-induced, nightmarish life on an ever-speeding treadmill from which there was no escape. Our government, because of its commitment to baseline budgeting (more on this next week) is, likewise, on a spending treadmill from which there appears to be no escape.

Unfortunately, the only time our President seems to be in step with himself is when he is in campaign mode.  Once again, unemployment benefits have been extended and now unemployment dependency will have stretched over 100 weeks.  Even under the Clinton administration, then President Clinton knew how to convert welfare to workfare.

According to the Congressional Budget Office, this deal to avoid the fiscal cliff will add $4 trillion to the long‑term debt and this is becoming a permanent reality.  As The Guardian put it,

“It is a habit of the United States Congress never to congratulate itself until it has utterly failed to accomplish what it set out to do.  Needless to say, the Congress is particularly delighted with its work in leaping over the fiscal cliff.  It will never be put that way.  Amid the usual Washington smoke and mirrors, lawmakers talk about the benefits of the deal:  it will cut taxes; it has come in time to avoid the real fiscal cliff; it will reduce the U.S. budget deficit; it will represent a bipartisan agreement to fix America’s debt problems.  Frankly, it does precisely none of those things.”

Lawmakers and the President should regard this failure to think through major issues that impact the American economy as shameful. And if they don’t, the people should. .  As humorist Andy Borowitz concisely put it, “Praising Congress for the fiscal cliff deal is like giving an arsonist an award for putting out his own fire.”  The deal does not even avoid the uncertainty and economic disaster, which the fiscal cliff represented.  In fact, it creates an even higher cliff.  Actually, a “fiscal mountain”, according to The Guardian.

Faced with sweeping government spending cuts that were designed in 2011 to be so stupidly punitive that they would never be passed, the Senate punted and put the issue off for two months instead of sitting down and thoughtfully coming up with a new set of sensible spending cuts.  The result:  the new fiscal cliff will have even higher stakes.  The U.S. could spend the next two months wrestling with an even greater potential economic crisis with a more dire impact on the markets.  This deal has done absolutely nothing.  The Wall Street Journal in a column by David Malpass assessed it this way:  “Whatever ultimately emerges from the fiscal‑cliff results, the country will survive but the damage cannot be undone.  Taxes are going up for all working Americans.  And so is the size of government.”

The President made clear all along that his goal was not to get business going again, but instead to expand government and redistribute income.  He offered no real spending cuts and instead used the year‑end deadline to divide America into classes to the point of campaigning on New Year’s Eve against higher earners.  Though the President talks about fairness, his policies penalize profit and investment.  This hurts aspiring Americans more than it hurts those who have already made it.

The President showed his true colors during the negotiations when Speaker Boehner put on the table $800 billion in new taxes.  He asked the President what he got in return, and, according to Boehner, the President said, “You get nothing, I get that for free.”  Thus, there is no progress toward spending cuts, revising the awful Internal Revenue Code, or reducing the size of government.  No spending restraint even has been eluded to, let alone implemented.

The Congressional Budget Office scores the Senate bill as adding another $4 trillion to the national debt by 2022, and even that is based on positive assumptions that are unlikely to happen.  The debt limit, on which discussions will take place in a couple of months, really provides very little leverage.  As The Wall Street Journal suggests, “The debt limit should be repealed and replaced with a law that cuts spending when there is too much debt.  Perhaps there should be a debt‑to‑Gross Domestic Product ratio limit that, when exceeded, would give the President the power to under‑spend congressional appropriations and to propose fast‑track reductions in entitlements.

The President  put us through a charade, mobilized Vice President Biden to  put a smiling face on a bad deal, and  then quickly flew back to vacation in Hawaii.  As we have said earlier, it is going to be a long four years during which this country’s competitiveness is likely to suffer, its debt to increase and its standard of living to decline.  What a way to run the greatest country in the world.