May 21, 2013
Wonderland on a Cliff
Posted on Dec 13, 2012
Are you as sick of the “fiscal cliff” as I am? Actually, that’s a trick question. You couldn’t possibly be.
Having to read and hear all the constant blather about this self-inflicted “crisis” is an onerous burden, I’ll admit. But just imagine having to produce that blather. Imagine trying to come up with something original and interesting to say about a “showdown” that has all the drama and excitement of, well, a budgetary dispute.
As if this weren’t bad enough, it happens that both of the protagonists—President Obama and House Speaker John Boehner—have reasons to wait until the last possible moment to agree on a deal. Obama believes time is on his side, while Boehner needs to show the troops that he will fight on the beaches, on the landing grounds, in the fields and in the streets ... This could go on past Christmas, at which point many of us will be looking for a real cliff to jump from.
What is the true state of the negotiations? I can say with supreme confidence that we don’t have a clue.
For all we know, Obama and Boehner may be working on some grand fiscal bargain that will overwhelm all opposition with its scope and audacity. Then again, in their one-on-one meetings, they might be discussing their golf swings. The fact that we’ve learned essentially nothing about their private conversations is either a very good sign or a very bad one, depending on which uninformed “analyst” or “observer” you choose to believe.
Numbers are being tossed around that have no basis in reality. I’ve heard television commentators confidently predict that we’ll end up with an agreement for about $1.2 trillion in new revenue over the next decade. Why that figure? Well, we know that Obama began by demanding $1.6 trillion, and that Boehner began by offering $800 billion, so if you split the difference you get $1.2 trillion. This makes perfect sense—in some parallel reality.
Anyone who thinks Washington is a split-the-difference kind of place hasn’t been paying attention. It’s more of a take-no-prisoners kind of place, and my guess is that meeting in the middle is one of the least likely conceivable outcomes. But what do I know?
What does anybody know? Among the uncertainties is what would really happen if the White House and Congress fail to reach a deal. Would we be taking a swan dive into the abyss?
This week, corporate America has been lobbying for some agreement—almost any agreement—that would cut government spending and raise new revenue. The Business Roundtable, an association of CEOs, wrote a letter urging the president to “demonstrate that principled compromise is once again possible and that the American political system that underpinned the economic success of our nation and others can function as designed.”
The letter argues that “political paralysis” in Washington fuels “global uncertainty that discourages businesses from investing and hiring new workers.” I would call this the “just agree on something, anything” school of thought.
But as I recall, our elected officials did agree on something: That the Bush tax cuts, the payroll tax cut and other measures would expire in January, and that huge and unprecedented budget cuts, especially in defense spending, would take effect. The fiscal cliff wasn’t formed by plate tectonics or volcanic eruptions. It was made by Congress and the president.
So really, how seriously are we supposed to take the warnings of doom coming from Capitol Hill and the White House? If Congress didn’t want taxes to go way up and spending to go way down, why did it pass legislation ensuring these things would happen? And why did Obama sign those bills into law if they’re such a guarantee of unmitigated disaster?
Here is one observation about the fiscal cliff that is based not on guesswork but on empirical fact: The politicians who brought us to this precipice are the same politicians we’re counting on to keep us from tumbling into the void. Which suggests to me that if you’ve got a parachute, now might be a good time to strap it on.
Previous item: Why the Fed’s Jobs Program Will Fail
New and Improved Comments