Enough Washington Drama

August 5th, 2011 at 9:14 am | 6 Comments |

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These certainly are interesting times. The United States is in an increasingly precarious position. Growth at home is anemic.  There’s not much in Europe to be up about either. Markets are increasingly skiddish, and yesterday plunged.

But America just fought a great battle! The forces of fiscal responsibility and spendthrift largesse clashed against one another, dueling right down to the moment when it seemed that all might be lost, but no! Miraculously we have a deal, perhaps not a “grand bargain”, but a deal none the less. Surely this battle captures the mood of the nation, certainly my fellow countrymen and women sat at the edge of their seat like everyone here in Washington. Right?

Wrong.

What does capture the mood of the nation? For me it was a conversation I had, a little over a year ago, back home in Wisconsin, where Kabuki theater still did not exist until, well, this winter. A close friend of mine had just left a long and rewarding career as a diesel mechanic, and had begun his own shop. When I asked how things were going in this new venture his reply stuck with me for a long time, and hit home this week while I watched CNN broadcast live from the House Chamber, tallying votes for the debt deal.

“Well right now we’re just waiting to see what the Government’s going to do next.”

He was referring to Cash for Clunkers, which I can imagine to the mind of a mechanic must have seemed like absolute lunacy. This comment though, captures everything in today’s America, and especially in this increasingly raucous 2011.

What’s going to happen next? Where can I put my money? Will I get a social security check? Will I get an unemployment check? Will my community receive stimulus, or will funding evaporate? No one really knows, least of all, so it would appear, Congress!

While Congress is caught up in successive paroxysms of misread mandates – the 2006 to 2009 mandate to bring about a progressive utopia, and the 2010 to 2011 (it will end) mandate to bring about a “governmentless” utopia (if there is such a thing) – the nation is in a painful transition period dominated by deleveraging. We spent too much, and then in 2008 a lot of our wealth just evaporated, and now we’re paying down the bill. This is where we’re at, for all the sound and fury on the airwaves, most of us don’t want a day of reckoning, we just want to get this behind us and get back to work.

While Americans pick up the slack, and there is a LOT of it, perhaps as much as two to three years more for most households, the economy has limped along, fueled in large part by stimulus and quantitative easing. These programs haven’t sparked a massive recovery, but they have saved us from what could have been a precipitous drop into something that looked a lot more like the 1930s.

If we are going to stop the spending now, who will fill the void? Consumers won’t, they’re not ready, and the future is still too opaque. The old model of GDP being 60-70% consumer spending isn’t something we can go back to anyway. Corporations are flush with cash – some $2 trillion, but they won’t spend it, because consumers won’t buy their products.

So what can be done? For Congress, get a clue – it’s not about you – and get out of the way!

Stop creating dangerous and needles crises and start creating long-term expectations. Or where those aren’t possible, at least short term expectations, which are an improvement upon absolute uncertainty. Now that the debt ceiling battle is over, Congress may have some cover to pass annual spending bills. It should. While five and six year spending bills are not feasible, it should at least pass bills that create stability for the next two years. Come November, it should begin to lay out a long term plan of tax reform that seeks to readjust the economy away from overspending by consumers, and toward a more balanced mix that includes increased savings, investment, and innovation. That means cutting taxes in areas like personal and corporate income, but raising them on consumption – something that will, admittedly, precipitate another crisis (but a worthy one!). Those changes will begin to create stable expectations, which in turn will create an environment where the risk of the unknown is diminished, and businesses and consumers can begin to jump back into this economy. That will create jobs. And that is what we all want to happen next.

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6 Comments so far ↓

  • Solo4114

    A nice thought. Alas, I fear it falls on deaf ears, at least with respect to our elected officials.

    • Smargalicious

      It won’t happen until after the Democrats realize (and admit) that their choice in 2008 was a horrible mistake. At least Hillary, with the consultations of her wandering ol’ man, would’ve understood basic economics.

  • valkayec

    “The forces of fiscal responsibility and spendthrift largesse clashed against one another,…” is something of a misnomer. The Ryan budget was far from fiscally responsible as it added $6 trillion to the deficit and failed to balance the budget until 2030 when most of the Baby Boomer had long retired. As for spendthrift largesse, the actions taken by the federal government were necessary, if not large enough given the revised figures showing how dramatically the economic contraction fell.

    Yes, there is a lot Congress can do, but to do anything, the two parties have to work together. Boehner may not be able to get anything through his Tea Party dominated caucus – unless the new poll showing on 20% public support for the Tea Party shocks them into waking up – without the support of Pelosi and the Dems. I would put revising the tax code near the top of the list, but instead of reducing personal income taxes I’m more inclined to increase taxes on the high end. We do have a huge debt and we do have to pay it off. That means even high earners have to contribute more. Corporate taxes should come down as long as all the loopholes are removed so that every company pays something since they all receive the benefits of this country. Moreover, I would encourage those working on tax revision to take into consideration that the tax code is one of the best ways to encourage behavior we want and discourage what we don’t want. As such, it can be designed to encourage investment in the US rather than abroad, innovate, encourage start-ups, and educate. The VAT alluded to in the article concerns me at this time of economic weakness because it’s a regressive tax that negatively affects low income earners most. I’d also p0ut on the to-do list an energy policy that is forward looking (not back at oil as being the main source of energy) to get to clean energy generation, which could jump start that industry and with it job creation, and increase our energy security. Next would be national security/defense policy that examined the reality of future threats and built a budget to deal with those threats, rather than massive out-of-control spending that’s taken place of the last 12 years. Although unlikely to be accomplished, we need a sound immigration policy too. Then there’s the matter of reducing the costs within the health care delivery system. By 2020, health care spending is estimated to be 20% of GDP, up from its current 17%. Those numbers are too large a drain on the economy, preventing start-ups, job transitions, increased incomes and company investment. Then there’s the mortgage quagmire and trade policies. Each of these require new, creative thinking.

    Of course, none of these changes will occur as long as the revenge, libertarian, Ayn Rand mentally continues to exist in the House. As John Donne wrote 4 centuries ago, “no man is an island.” We all need each other and must work together to solve our national challenges. And we need to overhaul campaign finance to remove much of the influence that wealth and power play in politics which further separates elected officials from the voters’ needs, the system will continue to be dysfunctional at its very core.

  • Graychin

    No mention of jobs until the very last sentence! And the belief that “uncertainty” is what is holding back job creation! What a silly essay!

    If the “uncertainty” principle were true, the debt ceiling hostage crisis has been the greatest creator of “uncertainty” ever devised by Congress. Never before has Congress been run by people crazy enough to hold the debt ceiling hostage to their ideological demands. And we have an appropriations process to look forward to in the next 60 days, driven by the same hostage takers! How’s THAT for uncertainty?

    EVERYONE who knows what he is talking about (that’s not Mr. McNitt) understands that our present stagnation is due to a lack of demand. Why expand your business when demand for your product is slack? Demand is created by putting more money into the hands of people who will (or MUST) spend it. The money sitting in corporate treasuries and in hedge funds isn’t creating a single job.

    Will the House ever bring up a jobs bill? Ever?

    (No – that might help Obama’s re-election.)

  • jamesj

    I don’t understand this piece. It contains obvious confusions.

    “For Congress, get a clue – it’s not about you – and get out of the way! Stop creating dangerous and needles crises and start creating long-term expectations.”

    Why are you calling out “Congress” for a situation clearly caused by a specific faction of Republicans in the House of Representatives? If you want a solution to this problem, shouldn’t you start by correctly assigning blame where it is due?

    “Stop creating dangerous and needles crises and start creating long-term expectations… That means cutting taxes in areas like personal and corporate income, but raising them on consumption – something that will, admittedly, precipitate another crisis (but a worthy one!).”

    What in the hell? I thought your main point was to criticize the creation of needless crisis by Congress, but you then advocate a disruptive large-scale alteration to the tax code. It just doesn’t make sense in the short term and is even risky in the long term. Tea Party politicians in the House thought the crisis they created was “a worthy one”. That is the type of thinking that is hurting this great country.

    “Those changes will begin to create stable expectations…”

    You propose deviating from the rest of western civilization and starting a needless crisis with a revamp of the tax system and then you immediately go on to say it will create stable expectations. Think about that. Read it back to yourself. It is, of course, a direct contradiction in the truest sense.

  • armstp

    Your characterization:

    “The forces of fiscal responsibility and spendthrift largesse clashed against one another..”

    is such bullshit.

    Unless you are talking about the Democrats regarding fiscal responsibility. The GOP does not own the fiscal responsibility issue. In fact, through history it has been the Democrats who have always been the most fiscally responsible and the Republicans the least. The Dems have always talked about spending cuts, even in these recent negotiations. In fact, it was Obama who was ahead of the GOP on this by proposing the debt commission when the GOP did not want to have anything to do with it.

    The proper characterization is the battle between those who want to dismantle the social safety net of this country, take the economy down with immediate spending cuts and are not fiscally responsible by not considering tax cuts versus those who wanted a more comprehensive balanced approach to fiscal responsiblity that will protect as much of the social policies and need for future investment in this country.

    It is not congress creating crisis, but one party in congress. The GOP. All they have done is try and bring this economy down and to get in the way of recovery for the last two years. They are gumming up the system and it benefits no one.