Things to Come 7 - Over the Fiscal Cliff

The "Fiscal Cliff" negotiations are phony; Obama wants us to go over it.

In the last two articles in this series, we discussed how Obamacare will destroy health insurance as we know it, and at the same time, destroy health care itself as it has done in other countries with national health care systems - at vast expense.  Obama clearly considers this a cost worth paying, with consequences that may not be obvious.  So in this article, we'll discuss the Fiscal Cliff and what's really going on in Washington.

Over The Cliff We Go

Most Scragged readers will already be familiar with the Fiscal Cliff, but we'll try to give a quick recap.

Our Federal government has run a deficit - spent more than it collects in taxes - since the end of the Clinton years, and for a long time before then.  For most of this time there's been a small but vocal minority pointing out that you can't run in the red forever.  No politician really wants to cut spending (Democrats) or raise taxes (Republicans) so the red ink flows unabated.

Hence the Budget Control Act of 2011, in which Congress tried to create a situation in which they'd have to balance the budget by the end of 2012 or something even worse would befall - namely, most of a trillion dollars in cuts to Defense to horrify Republicans and another huge chunk in cuts to welfare programs to horrify Democrats.

At the same time, and separate from the mutally-assured-destruction of the BCA, the famous Bush Tax Cuts are scheduled to expire along with 2012, leading to what's been described as the largest tax increase in history, mainly on the middle class.

Last but not least: the legal debt ceiling, which limits the total amount of the national debt to an already awe-inspiring $16.4 trillion, will be reached sometime in the first few weeks of 2013.  In theory, our borrowing would come to an automatic and crashing halt, at which point the government couldn't pay half of its bills.

We here at Scragged are staunchly in favor of slashing government spending, but it's an unavoidable truth that abruptly cutting spending by half would lead to massive job losses, of contractors if not actual government employees.  We believe that cuts of this sort would ultimately lead to a better economy and economic growth, but it would be painful in the meanwhile.

The obvious solution if you believe in an ever-growing government would be to raise taxes, but even Barack Obama claims to understand that, as he put it:

You don't raise taxes in a recession.

Key word: claims.  Barack Obama claims to understand that higher taxes hurt economic growth and employment.  He claims to want Americans to lead better lives and have better jobs.  He claims to want a return to Clinton-era prosperity; he even claims to want to balance the budget.

It's an odd thing, though, that throughout his presidency, unemployment has gone nowhere but up, as has the deficit and the national debt.  Is he just incompetent?  Did George W. Bush somehow ruin things so badly that, as Bill Clinton suggested, nobody could have fixed it, not even his own exalted self?

Or is there something else going on?  We believe there is.

Please Don't Throw Me In the Briar Patch!

It used to be an old saw that poor people vote for Democrats and rich people for Republicans - so Democrats try to make more poor people and Republicans rich ones.  It's not so funny anymore, as that's exactly what Mr. Obama has accomplished - record long-term unemployment, record number of food-stamps recipients, and a solid re-election despite the worst economic record since the Great Depression.

The Republicans assume that Mr. Obama really and truly does want a better economy, he's just deluded as to how to achieve it, so it's their mission to help him despite himself.  Likewise, Republican leaders assume that Mr. Obama and his Democrats really and truly do care about the poor, hence their massive levels of welfare spending.  That's why Republican negotiators in 2011 assumed that welfare cuts would hurt the hearts of Democrats just as much as defense cuts make Republicans cringe.

But what if they don't?

Let's be cynical for a moment, and think about what Mr. Obama would do if all he cared about was permanent power and an ever-growing government.  He's already got record numbers of Americans dependent on government; many of these have lost all hope of ever regaining independence, figuring that our stalled economy is "the new normal" - an evaluation with which we happen to agree.

Yet the President is still irritated by a Republican-controlled Congress, and what's more, the President's party usually loses Congressional seats at the midterm elections.  How can he go against the historical tide and get his party to gain seats, especially in the teeth of an ongoing depression?

By successfully blaming Republicans for the depression, that's how!  By putting forth proposals that the Republicans politically must reject, and blaming them for the inevitable and expected failure!

And that's precisely what we see him doing, with the tremendous success that comes from having the entire mainstream media on your side.  To wit CNN:

House Speaker John Boehner painted a bleak picture Sunday when talking about fiscal cliff negotiations between the White House and Republicans.  "Right now I would say we're nowhere. Period. We're nowhere. We've put a serious offer on the table by putting revenues up there to try to get this question resolved, but the White House has responded with virtually nothing," Boehner said on "Fox News Sunday."

Boehner said the reason negotiations are going so poorly is that Obama administration officials - in particular, Treasury Secretary Tim Geithner - aren't taking Republicans seriously. Boehner said he was shocked at Geithner's proposal to Republicans last week. "I was flabbergasted. I looked at him and I said, 'You can't be serious.' I've just never seen anything like it," Boehner said.

Geithner has said his plan included cuts to Medicare and additional stimulus spending, but also an expiration of Bush-era tax cuts to those making over $250,000 a year. Furthermore, the proposal included the closing of some loopholes and new limits on deductions, as well as an increase in the estate tax rate and taxes on capital gains and dividends.

From this description you'd think the problem was the usual Republican unwillingness to negotiate, wouldn't you?  You'd be totally wrong.  As Charles Krauthammer explains, Obama's proposal (via Geithner) offered no cuts whatsoever:

There are not only no cuts in this, there's an increase in spending with a new stimulus. I mean, this is almost unheard of. What do they expect? They obviously expect the Republicans will cave on everything.

Mr. Obama is not negotiating, not at all.  He's argued for tax increases of all sorts and especially on "the rich;" his "negotiating proposal" is the same tax increases he's always wanted and more spending beside!

When you negotiate, you give up something you want so as to come a little closer to the other side, in the hopes that they'll do the same and you can meet in the middle.  Instead, Mr. Obama came out with a new "proposal" that was farther away from Republican objectives than the last one!

Krauthammer is right in his analysis of the "deal" - no cuts of any kind, just more taxes and stimulus - but he's wrong about what Mr. Obama expects.  He doesn't really expect the Republicans to cave, though if they do that's fine by him; the news will say we avoided the Fiscal Cliff and give him all the credit.  He'll have what he wants - higher taxes, more spending, no cuts - without paying any price at all.

Though that would be OK, he expects what will probably happen: the Republicans will refuse to accept a deal that would instantly and permanently lose them the support of their base, having learned that lesson from George H.W. Bush's abandonment of his "No new taxes" pledge and subsequent defeat.  America will go over the fiscal cliff into a new recession (actually the same old recession that's never ended, only more so) - and it will all be the fault of Republican intransigence, against which the Democrats can successfully run with the help of the media in 2014!

So what's our prediction regarding the fiscal cliff?  We're going over it, it will have exactly the horrible economic consequences everyone's predicted, and Mr. Obama will laugh all the way to the polls - the Stupid Party having once again walked straight into his trap.  Oh, and he'll have succeeded in accomplishing a major leftist goal for the past half-century, the gutting of our national defense - which happens to be the one function of our current Federal government that the Constitution actually tells our Federal government to do, and not coincidentally the one part of government that the Democrats want to not do.  Figures.

How did things come to this awful state, where 51% of America's voters support an administration that's consciously destroying all that America means - that is, where a clear majority of Americans freely chose the utter destruction we've been describing?  The answer may surprise you, and it's what we'll explore in the next article in this series.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
Reader Comments

It's nice, bittersweet, perhaps, to hear more voices in the lonely choir that shouted in the wilderness to warn the deaf and stupid and otherwise engaged that this man came to destroy.

From where I'm standing, the only realistic option open to the Republican party leadership at this point - short of ritual suicide by disembowelment - would be to simply stand aside, and vote 'Present!' to whatever the Democrats propose, and do so loud and proud. Have everyone everywhere know that the policies that emanate from the government from this point forward are those of the president and his party. Why not vote president? The Golfer-in-Chief has shown us the way!

The coming disaster - the trip over the cliff - is inevitable, and that's the best that can be done to ensure that Republican fingerprints are nowhere to be found.

And as for how we got here, one significant part of the explanation will probably have to do with what my recent experience with college students has taught me -- that Americans today would rather the illusion of freedom that comes with pointless sexual license (despite the lack of any serious proposal to take it away) over the possibilities that come with economic freedom.

Finally, not to pick nits or anything, but the economic contraction is technically over, leaving us instead with miniscule and negligible growth, revised downward quarter after quarter, year after year. What we now experience is a Depression. Another recession, to deepen and prolong this depression - think 1933, 1937, 1979, 1982 - is what will happen starting January 1.

December 17, 2012 9:42 PM
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