The Flathead Valley’s Leading Independent Journal of Observation, Analysis, & Opinion. © James R. Conner.


31 December 2012

If the fiscal cliff is avoided, Republicans win

It’s possible a deal may be reached, at least in the Senate, on the so-called fiscal cliff (really a gentle sidewalk to street wheelchair ramp over a low curb), before the New Year arrives. If so, writes economist Jeffrey Sachs:

…the Republicans have won: they have locked in a federal tax system that collects so little total federal revenue that government can afford almost nothing aside from the military, interest payments, retirement programs and health care. Say goodbye to the rest: science, technology, education, job training, infrastructure, a functioning justice system, community development, renewable energy, environment, and more.

How would we divide up 18.5 percent of GDP while bringing the budget deficit under control? The current mandatory programs are around 13 percent of GDP, and because of population aging will rise to around 13.5 percent of GDP in the second half of this decade. Interest payments will be around 2.5 percent of GDP. Military outlays are currently around 4.5 percent of GDP. The discretionary civilian programs are currently around 3.5 percent of GDP, already a wholly inadequate level.

To bring spending down from this point, even to 20.5 percent of GDP (leaving a deficit of 2 percent of GDP), would require very deep cuts somewhere. Suppose that military spending could be cut to 3 percent of GDP, with the military-industrial complex kicking and screaming in objection. That sum plus interest payments of 2.5 percent of GDP would leave around 15 percent of GDP for mandatory programs and civilian discretionary programs. If the mandatory programs were left unchanged, civilian discretionary programs would fall to around 2 percent of GDP, an absurdly low level. Yet if those programs were protected (as they should be), something else would have to give: vital support for the poor, or any hope of getting the deficit under control.

In short, something terrible would have to give. Either we’d have to gut life-sustaining programs for the poor (Medicaid, Food Stamps, etc.), or gut civilian government (education, science, environment), or bust the budget with trillions of dollars more in public debt.

The point is that prolonging the Bush-era tax cuts, whether it’s for everybody (as the Republicans want) or “only” for the bottom 98 percent as Obama wants, or someplace in between, would leave the government without the federal revenues needed for basic services, support for the poor, and public investments for training, education, infrastructure, science, and the environment. So, if a deal is struck, we likely face a decade of shrinking civilian programs, more suffering of the poor, and mounting public debt.

He’s right.

Democrats, not all, but most, are pursuing a deal in the apparent belief that compromise is an intrinsic rather than an instrumental good. That makes them patsies for Republicans. Obama is stumbling over himself in his haste to abandon his campaign promises and appease the party he defeated on 6 November, reverting to negotiating with himself and caving to hostage takers just as he did in the lame duck session of 2010 and the debt ceiling crisis of 2011. What Tallyrand said of the Bourbons, “They have learned nothing, and forgotten nothing,” applies to Obama and his deficit traumatized allies in the Democratic Party.