Election Outcome: Kick the Fiscal Can Down the Road (Forbes.com) November 7, 2012Posted by daviddavenport in Op/Eds.
Tags: Presidential Elections
After all the money (a campaign spending record exceeding $2 billion), hard work, negative campaigning and wall-to-wall advertising, Americans have voted to kick the can down the road. They don’t want to take their medicine yet. They want to continue to live in a suspended reality where government can keep growing and spending and no one picks up the tab.
What, specifically, is the can we’ve kicked? It’s the fiscal path the nation is traveling that can only be described by a word we avoid in other contexts but apparently embrace in this one: unsustainable. It is the fiscal cliff of $570 billion worth of automatic tax increases and spending cuts that was already kicked down the road until the end of this year. As Hoover economist John Taylor points out: “The fiscal cliff was not created by aliens from outer space.” We created it ourselves by our unwillingness to face the fiscal music before.
More than that, the can we’ve kicked down the road is our massive debt. Our current spending habits add over $1 trillion a year to the deficit. Just the increased debt of the last four years has added $55,000 in borrowing for each American household. A new study by Hoover economist Michael Boskin concludes that the debt-to-GDP ratio will have essentially doubled between 2008 and next year, from 40.5% to nearly 80%.
The Obama administration admits it has no plan for this. In Congressional testimony in February of this year, Treasury Secretary Timothy Geithner told Congressman Paul Ryan, “You are right to say we’re not coming before you today to say ‘we have a definitive solution to that long term problem.’ What we do know is, we don’t like yours.” Wow, put that on your campaign poster or your business card: We don’t have a plan, but we don’t like yours. And the American people bought it. Even President Obama, in his victory speech, listed first among his challenges “reducing our deficit,” but again without articulating any plan to accomplish that.
Entitlements? Sky high and growing every minute, with no plan to address the cost. Instead we add national health insurance to the expensive basket of benefits. Government regulation? Funding for federal regulatory agencies is at an all-time high, as is the number of their employees. The number of pages in the Federal Register with new rules? Again an all-time record.
Actually in this election, both parties put forward economic myths of one sort or another. The Democrats’ myth is that you can just keep growing government and spending and not worry about the cost. In a seminar with an Italian colleague a few months ago, he said the big difference between you in America and us in Italy is that you can still print money. In an election year, he continued, your politicians are printing money (adding to the debt) and spending it everywhere to get reelected. But now that we gave up the lira for the euro, he concluded, we can’t print money anymore. To the extent Democrats have an answer to this, it is merely to increase the taxes of the top 1% and shift the rest of the debt to our children.
The Republicans have a half-myth themselves. While Paul Ryan’s plan would cut spending and deficits, Republicans also rely on cutting taxes to grow the pie and increase overall tax receipts. I understand why, in an economic downturn, a pure austerity approach may not be best but, as a realist, I’ve never been able to fully drink the whole glass of supply-side Kool-Aid.
Others will argue the politics of this election. My disappointment is in the American people, and their elected officials, for once again kicking the can down the road. A good friend reminds me never to underestimate the American people. But I keep thinking about that famous quotation of Albert Einstein’s: “Insanity is doing the same thing over and over again, but expecting different results.”
Please click on the link to view the op/ed on Forbes.com: http://www.forbes.com/sites/daviddavenport/2012/11/07/election-outcome-kick-the-fiscal-can-down-the-road/