The Problem isn’t the Fiscal Cliffs, It’s the Lemmings Running
If you don’t buy a toaster by January 17, you will die.
Sounds stupid, doesn’t it? Yet it is no more ridiculous threat than the equally fictitious “fiscal cliff.” The daily chatter of ‘news’ outlets, talk shows and the water cooler is lemming lunacy. The cliff is not the problem. It’s the Lemmings who are running.
As I told you in U.S. Economy 101 (in Plain English, with Humor!): How the GOP and the Media Are Shucking You, as we headed towards the first dash towards the “fiscal cliff,” the United States has gross domestic product (GDP) bigger than China and Japan combined. We are the biggest economic power in the world. $15.1T GDP as of 2011.
What makes our debt good? Because we say it is.
Yep. That’s it.
World economics are a confidence game. The image painted by Tea Party of the U.S., England, Spain and Greece sitting around the kitchen table using Quicken to balance their checkbook and track their savings account is not how the world works.
Once we were a country pegged to the gold standard. Today, we’re a GDP-standard. Our currency, and our debt, are loosely pegged to what we produce in total output. We’re good for it because we make enough of it every year.
So we have a $15.1T GDP and a $14.9T total debt that equals about a year of that GDP. That’s a HUGE problem, right?
Not really. If the government were a business, that would be about an average debt-to-equity ratio. By contrast, most major banks, who have far more ephemeral assets that are juggled like a Cirque du Soleil act are more leveraged than the U.S. government. [2] Debt of 200-400% over equity in banking is not uncommon. Even at these high levels, the U.S. government is more solvent than a lot of Fortune 1000 companies.
After the fourth Great Depression in the United States and the end of WWII, federal debt including that debt purchased by the Social Security Trust Fund, was nearly 122 percent of gross domestic product. States and municipalities had little debt. [3].
Could our debt be lower? Sure. Reagan and the Bushes spent like drunken Shriners in Vegas on their watches. The Republican Congress of the Bush years added insult to injury when it handed out tax breaks and deregulation during two very costly wars until their no-tax-and-spend policy rotted Uncle Sam’s fiscal teeth. President Obama put billions more into preventing you reading this from a flat-screen in the doorway of your soup kitchen line.
Now we have to pay it off. In times where there were two sane political parties, this was a no-brainer. The old saying that you have to spend money to make money applies to fixing our fiscal imbalance. Stimulate the economy to get it moving in high gear, and the overall prosperity raises revenues that pay down debt to more modest levels. Ike did it. Reagan did it. Clinton did it. As long as you have a tax base that can draw revenue from that prosperity, the government can pay down its debt.
“What about waste?!” I will hear the Fox-fed decry as they harumph over food stamps and welfare loafers.
The government has been cut and slashed for decades. While you can always find an egregious example of waste here and there, federal government agencies are a lot leaner and meaner than the bloated bureaucracies of the 1970s and 1960s. Government payroll is well within the lower range of historical averages . Government employment was just 4.4M in 2010. By contrast, it averaged around 5.28M during the Reagan/Bush I years, and 4.2M during the W. years. The largest number of “lost” jobs in the U.S. economy over the last couple of years has been in the public, not the private sector.
After years of Frank Luntz and Roger Ailes and other Republican fear merchants peddling demon government, when you ask people specifically whether they want their rivers to burn, or have an EPA, they’re usually for the EPA. If you want nuclear waste dumped into your water supply, then you probably are for dismantling the Department of Energy (DOE). The fact is that we’ve become attached to bridges, roads, tunnels, schools, efficient air travel, clean water and even someone watching Wall Street to hopefully keep us safe from their piratical Bainbeards.
Why all the hullabaloo about debt ceilings and fiscal cliffs?
The children of the United States Congress play games, in part to amuse themselves and keep Fox and MSNBC in program topics, in part to dare themselves to be slightly less incompetent than usual.
The Congress created an artificial “debt ceiling.” It was supposed to be a number to remind them that they need to do more to keep revenue and spending in balance. It’s more financial Maginot Line than fiscal cliff though. Routinely Congresses run by both parties have lifted the “ceiling” when spending and tax cuts forced its rise. They’ve lowered it when they have been able to achieve meaningful reductions, as they did in the Clinton era.
The 2010 Teahadis dragged the Republican Party into a shameless stunt. Boxed in by their pledge of allegiance, not to the United States government, but to Grover Norquist, and trying like hell to find a way to scapegoat someone after their freewheeling spending and drunken tax gimmies to the rich, they went to the bullpen: The Tinhorn Alley team of Luntz and Ailes, served up a catchy phrase which they hoped would scare America’s conservative lemmings into voting for them in 2012: The fiscal cliff.
Fiscal cliff: A dynamic duo of magnificent mots that conjure up faux financial disaster bigger than the real one they created in 2008.
This cliff is an epic dilemma which, of course, only Republicans can solve by slashing evil government, even though most Americans told them in their 2012 election defeats that they’re kind of sweet on Uncle Sam and Aunt Liberty.
The truth is much more humble: It was the Tea Party holding the debt ceiling hostage that artificially created a problem where usually there is none. The allegedly fiscally-responsible Republicans brought our invincible credit rating down for the first time in its history. Not for any real cause other than their political theatrics and histrionics undermined credit rating agency confidence in: “Because we say it is.”
It remains the complete unwillingness of the Teahadis to speak to the revenue side of a belt-tightening that has been the major sticking point because the richest 1% of Americans will have to go back to paying 3% more on their taxes, even though most use loopholes to pay far less tax per capita than their employees.
While there should never be racial or gender litmus tests for admission to elected office in the United States Government, I’m starting to like the idea of an IQ test. We trust our $15.1T economy to a pack of cretins who believe in fairies and elves quicker than science or economics.
National and global economics are a confidence game. The solution to our fiscal woes, as it has always been is growth. American corporations, fired employees that were obsoleted by computers anyway. They were dumped like racks of last year’s sweaters at the Salvation Army. Now these companies are enjoying record, if not historic profits. They don’t want a lot of those workers back.
That means that we have to create new industry, via the web, new technologies that can be built here, and other new kinds of jobs that don’t rely on workplaces that will never “upsize” again.
You want to fix the economy? Start with a smart Congress. We got rid of the Village-Idiot-in-Chief in 2008, but Capitol Hill is loaded with malleable mental midgets, terrific turnipheads installed by the Club for Growth and the Dead Billionaires Club to rubber-stamp the wealthy’s wishes.
We have nearly a score of smart able women arriving in the freshman class. In 2014 we need more. We also need a new litmus test, a return to a fundamental leadership requirement for American government. No, it’s not abortion, not “family values,” nor even whether your pro or anti-Obamacare.
We need more people of science and business and humanity who can apply reason, not hyperbole and hysteria, or some doofus’ dogma to politics and policy. We need leaders with a brain in their freakin’ noggins, people.
The search for the replacements to the Teahadi toddlers and their tantrums should start now, today, in your community. Better yet, if you read this RUN. America needs common sense again. Thankless job that it is, being part of government can be being part of the solution. Don’t leave our economy in the capable hands of the incapable.
My shiny two.
About Brian Ross
11 comments on “The Problem isn’t the Fiscal Cliffs, It’s the Lemmings Running”
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Deborah Shlian
Jane Moss
John Ling
kennatoney
LPB
Brian Ross
truth-2-Power 
Mental noncompetence. Government spending skyrockets and you say it’s getting “leaner”. You compare private-sector-business debt/equity ratios to government debt/GDP, but GDP ain’t equity or even assets or even net assets. GDP is equivalent to gross revenues in a business.
If a business has a, say, 15% profit margin, you to be consistent would say that it would be fine to have debt six times annual earnings. The company meanwhile would be seeking bankruptcy protection.
But, your scenario is even worse. You treat GDP as if the federal government earned it and owns it. If that government got each and every American to work and produce for a year, default on mortgages, eat and drink nothing, spend nothing, and give every dime to the government while starving to death, the U.S. Government would STILL be in debt.
You said it all perfectly. But they want to keep getting Section 8 and EBT and foodstamps and tax breaks for battery cars and amnesty and Medicaid, etc. So they pretend not to understand.
The federal government’s only big problem is that is has been wired to run on income/payroll taxes to spare the rich who have become much, much richer in the last half-century not just through greater prosperity, but through cheating the poor and middle class. The only welfare that really hurts us Janet is the 17% tax holiday we give the rich through capital gains taxes. Billionaires take $1 salaries and run the rest of their pay as stock options, so they cash out at 17% not 36%. You could roll all of the food stamps and section 8 and EBT into one big ball and it is a drop in the bucket compared to what the rich get from the government. Add in all those tax breaks to corporates like Big Oil making billions with subsidies they haven’t needed for decades and the poor are really even a smaller problem. Now toss in all of the wealthfare that we serve up to the military defense industrial complex that IKE was so wary of, and you can barely see the poor from behind all of that sea of cash floating into the hands of the 1%
Get real.
Ross’s reply to you, Ms. Williams, is complete fiction.
Nothing fictional about it, Dr. Pete. Republican Kool Aid is a lot like sniffing paint, my man. Rots the brain, as we can clearly see with your disdain for the provable fact time and again.
Ah, Dr. Pete! My favorite troll climbs out from under your bridge! The government’s power is a byproduct of GDP. All governments power begins as economics. It was expressed as gold or reserves at one time. It is now expressed by how the companies within its borders, and the investments they control world-wide, reflect on real power which is amassed total wealth of a nation.
The scenario is quite perfect. Corporations that have been around for 100 years have always carried debt. Borrowing has always been a means of growth in capitalist societies. In fact, they have found that more leverage risk has returned higher rewards, so over the last fifty years or so more companies have taken on more debt, not less.
Debt is not the problem unless you have no sources of revenue to keep it in check. So when the market downturns, and the economy contracts, companies are making less, and the debt that they are holding becomes a greater burden on profit and prosperity.
The trick is to get the revenue side back in gear. You do that, and the debt can be reduced to manageable levels. We did it after the three great depressions in our history and the great recession is rolling out the same way, save for all of y’all that swallowed the Kool Aid from the Republicans who got us into this mess who were looking for face-saving ways to take power again. They sold you a big bill of goods, and while I fully understand that you have zero comprehension of how the economy has worked for a couple of centuries, and will not get it trapped in your own mind-vapor-lock, hopefully someone who is less Fox-fed will read this and understand that yes, indeedy, it’s all about money and making more of it. When you do, debt is reduced and in check.
What sophistry. Two problems:
1. How can we ever pay it back?
2. One day they’ll stop lending to us. What do we do then?
How we pay it back: Historically, when we run stimulus, as everyone from either Roosevelt to Ike to Reagan, Clinton, and Obama, the government takes on big needs projects like roads, bridges, schools, college loans INFRASTRUCTURE. This pays people, who in turn pay other people, and it kick-starts the economy. The economy grows. Tax base increases not through higher taxes, but through more activity and goods sold to tax. It pays back/off the times we’ve run up debt, in combination with also keeping government on its core mission of providing essential services. If you also want to pay it back, we can stop being the world’s policeman and go straight into the green in less than a decade by recalling thousands of people from Germany, South Korea, and other places where the war ended decades ago and where our resources are wasted on other’s prosperity.
2. This is where conservatives are so ignorant of the world. The largest “they” Janet is “us.” The Social Security trust fund lends money to treasury in far greater amounts than any other world power. The potentates of the Middle East and the oligarchs of China won’t stop lending to us because we offer a level of general stability, other then when they let you Teahadis into the Congress in large enough numbers, that is really unrivaled anywhere else in the world, as the situation in Europe with the EU has clearly demonstrated. We are the world’s currency bedrock still, and, with nearly 9T more in GDP than China for the next 20-50 years, depending on how badly y’all shoot us in the foot again, our GDP still gives our currency that pull.
The only way to screw it up is to do exactly what you Fox-fed types advocate. If you want to see why it fails, pick up the Financial Times. Austerity is doing wonders for the EU. They should dissolve under it in a matter of a year or two if they don’t go back to stimulus. Reagan and his cronies would have advocated that to them back in the day. When you kiss your dashboard Ronnie on your way to work tomorrow, remember that.
As you clearly know, but Mr. Ross, does not, Ms. Williams, the gubmint can legitimately spend not a cent until it takes that cent from someone who earned it in the private sector, or borrows the money (currently almost half of every gubmint cent spent), or “taxes” us all by inflated the USD. In any case gubmint spending cannot grow an economy.
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