I’ll Take the Fiscal Cliff Over the Solutions Being Proposed

Right From the Start

There is a skin condition identified as basal cell carcinoma that mostly occurs as a result of prolonged or intense exposure to the sun. Often times it manifests itself on the face, forehead and ears in a form that looks like an abrasion, inflammation or acne (a pimple for those of you forced to endure a teachers’ union education in Portland public schools). It is more likely to occur later in life than in adolescence.

It appears to respond to superficial treatment such as ointments, drying agents, etc. However, unlike abrasions, inflammations and acne, such treatments only cover up the underlying problem and it will recur in exactly the same spot – each time slightly larger. Left untreated – usually by surgery – the cancer will continue to grow and result in some pretty ugly scarring when eventually treated appropriately. Over the long run, treating the symptoms rather than the cancer, while providing cosmetic cover, will only make the problem bigger and the cure more calamitous.

Now, think about President Obama, the Congress and the national debt.

Let’s make sure that we understand the nature of the problem. Deficit spending in and of itself is not the problem. There are legitimate reasons for borrowing money to meet current cash flow needs. Just as a family routinely borrows to purchase a home, to finance a car(s), to pay for education needs, and/or emergency medical needs, the government should be expected to borrow for necessary capital expenditures (land, buildings, improvements, etc.), military expenditures in times of conflict, recovery from natural disasters, and, to some extent, investments in specific scientific programs (NASA, medical research, etc.) Just as families need to borrow occasionally to pay recurring expenses for short periods during economic difficulties, the government should be expected to borrow to meet necessary recurring expenses during economic downturns.

But as a general rule, continuous borrowing to meet recurring expenses represents the onset of a serious problem – a cancer that appears first as a blemish but over time grows to ugly proportions.

[It is of little consequence how it began or who is responsible – although is appears that assigning blame seems to occupy more time with Mr. Obama, the Congress and the media than actually trying to fix it. Mr. Obama points to the tax cuts and the wars in Iraq and Afghanistan in order to fix blame on former President George W. Bush. The Republicans point to the foolish spending under the stimulus plan, the introduction of Obamacare, and the growth in entitlement programs – a growing welfare state – as the culprit in order to fix the blame on free spending Democrats. Both are right but neither escapes the blame since it requires both the President and the Congress to concur in the expenditure of funds. At any time, the Democrats could have stopped the wars begun under Mr. Bush by refusing to approve funding – even when they were in the minority they could have stopped it in the United State Senate by use of the filibuster. But they didn’t. In fact, they approved additional funding every year. The Republicans could have stopped this level of funding at any time – even when they were in the minority in the United States Senate through the use of the filibuster, except for the first two years of Mr. Obama’s presidency when the Senate was filibuster proof. But they didn’t. In fact, they approved additional funding every year.]

The point is that presidents and Congress have been talking for decades about deficit spending. They have seen the blemish and chosen to ignore it or to treat it with cosmetics rather than the necessary surgery. The fact of the matter is that the creation of the “fiscal cliff” was yet another instance when Mr. Obama and the Congress refused to address the underlying problem by deferring resolution under the guise of a “fiscal cliff.” I say this because the problem is the same as it was when Congress passed and Mr. Obama signed the Sequestration Transparency Act of 2012 in August of this year. We are incurring debt at the rate of over $1 Trillion per year because the expenditures approved by Congress and signed by Mr. Obama exceed annual tax revenues by that amount.

The increasing debt is being used primarily to fund recurring expenses. The continuing expansion of entitlement programs including the introduction of Obamacare is the single largest factor in this deficit spending. (One might argue that the wars in Iraq and Afghanistan contribute significantly but Mr. Obama has assured us that the war in Iraq is over and the same will be true in early in 2013 for Afghanistan. In fact when Mr. Obama states that he has already reduced expenditures by $1 Trillion he is referring to those two wars and the savings are based on an illusion that they would have carried on for another decade.) Adding to that problem is the rapidly expanding public sector job creation. According to the United States Bureau of Labor Statistics seventy-three percent of all jobs created since June of this year – the time leading up to the election – were public sector jobs. Not only are public sector jobs better paying than private sector employment, the benefits are greater and the expectation of any reductions in workforce are non-existent.

The problem with the burgeoning expansion of entitlement programs and public employment is that both expand in sheer numbers of people benefited as well as in the per capita benefit costs. In a stagnant economy where the private sector is barely holding its own, the ability to generate growth in tax revenue at a rate necessary to keep up with the expansion of spending is zero. Regardless of your political persuasion the facts demonstrate irrefutably that we have a spending problem. The tax increase proposed by Mr. Obama provides funding for only eight days of government operations – it is quixotic and punitive rather than helpful at all. Even an increase from the complete elimination of the Bush/Obama tax cuts would not stem the flow of red ink. The point of this is that there is not a single entitlement programs that is sustainable over the long run.

The entitlement programs of the federal government represent the cancer that is upon us. They have been made worse by decades of ignoring the problem. And like a cancer, ignoring it has caused the problem to grow and grow and grow to the point that now the cure will be extraordinarily painful and the scars will be clearly visible. Presidents and Congress have demonstrated repeatedly that they are unwilling to deal with the reality of that cancer. There is nothing to suggest that this president and this Congress will be any different. That virtually guarantees that whatever the solution is to the “fiscal cliff” it will not treat the disease but will, once again, apply cosmetics and leave the problem to fester and grow.

This is a problem that does not diminish over time. Failure to act now only makes the cancer larger and the ultimate cure that much more difficult.

It is for this reason that I remain unconvinced that going over the “fiscal cliff” is all that bad. It certainly is not worse than the ultimate day of reckoning if Mr. Obama and the Congress continue on the present course of petit tax increases and even more petit spending cuts.