How far will we fall if we drive off the fiscal cliff?
What with the rising hysteria surrounding the budget, I thought it best to take some time to dispel the fallacious and misleading arguments surrounding the upcoming fiscal crisis, as well as provide some context for the issue. Let me start off though, by laying down the shame on every part of mainstream news in this country. I’m looking at you NPR. And Fox. And MSNBC, CNN, New York Times, USA Today… you get the idea. Should one listen to these news sources (I use the term loosely), you would get the impression that the United States is on the verge of a doomsday-like collapse into a second recession come January 1st. The fiction is as simple as it is misleading. As soon as the automated spending cuts come into effect, more than $500 billion in new taxes will take effect, or rather, many temporary breaks will expire. This includes the end of the Bush tax cuts at $220 billion, the end of some payroll tax cuts at $130 billion, and assorted miscellaneous breaks and loopholes at $130 billion. Combined with the sequestration (cutting) of $110 billion in defense and non-defense spending, fear-mongers claim this rise in taxes and fall in government spending will force economic collapse. This is the “fiscal cliff.” Here we run into a problem though, because there is simply no immediate crisis looming on January 1st.
Rather, this fear-mongering is based on the Congressional Budget Office estimate that assumes everything will remain in place for the entire fiscal year, at which point it is true that economic growth would slow somewhat. This country does not have to worry about some catastrophic fiscal cliff, but a gradual fiscal slope that will take several months to realize any effects. That this country should be concerned about is the powerful interests using fear to manipulate the public into manipulating the public into going along with devastating cuts to essential government programs, including health care, education and social security. It is here we run into the larger issue of the growing deficit, because after all, these cuts were ostensibly put in place to reduce the growing deficit on the grounds that it stems from out of control government spending.
Such claims are little but lies designed to conceal the large structural issues within our economy. The budget deficit is not due to government spending, but the collapse of a housing bubble that cost several trillion dollars in consumption-related growth. In 2007, the federal deficit was roughly 1.2%, a number low enough to sustain indefinitely. It has risen to 10% only because since the Clinton years, the United States has come to rely upon a bubble driven, rather than a wage driven economy. The reliance, first on the stock market bubble and then the housing bubble, have spurred some of the worst economic downturns this country has faced, with a $10 trillion loss when the stock market burst and a $6 trillion loss when housing burst. These bubbles and the money they create for middle and lower class citizens has distracted from the fact that in the past 40 years, wages have stagnated even as worker productivity has doubled and tripled. Income gains have increasingly gone to the wealthiest segments of society, with 10% of the US population now controlling 90% of the wealth. By way of example, compare the largest U.S. employers in 1950 and 2010. The former was GM, where workers were paid an average of $30-40 an hour with full benefits. Today, that company is Walmart, where workers are paid roughly $8.50 an hour, part time with no benefits.
How is this related to the hoopla over the fiscal crisis you ask? The deficit is a short term problem caused by a loss of consumption spending, which the government must replace in the short term. Elites like to pretend it is a result of out of control spending, when in fact it was due to the predictable crash of an unsustainable bubble economy distracting from the fact that incomes have stagnated. They have taken that deficit, lied about its causes and terrified the population into accepting a revocation of some of the most vital legislation passed in the history of this country, legislation I might add, that is widely supported across both political parties. Parties seem to forget that though, because they are more concerned about staying on the good side of the gang committed to cutting Social Security and Health care (aka “The Campaign to Fix the Debt). Of course, that campaign is made up solely of corporate CEO’s and corrupt politicians, so you can’t expect too much from them. Regardless, it is the failure to focus on job growth and income stagnation that are the real issues worthy of concern, not an imaginary cliff created by selfish elites to eliminate increasingly vital programs.