Fiscal Cliff

About that Fiscal Cliff

The "fiscal cliff" is less frightening than the bankruptcy cliff.

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Yikes, we're headed toward a fiscal cliff! It will crush the economy! Or so the media and politicians tell us.

The "cliff" is a series of tax increases and budget cuts that automatically go into effect Jan. 1 unless Congress acts.

Will Congress act?

It will! I see the future: The politicians will meet and fret and hold press conferences and predict disaster. Then they'll reach a deal.

It will just postpone the reckoning, but they'll congratulate themselves, and the media will move on.

America, however, continues to go broke.

"They're not going to admit that we're bankrupt, and they won't admit that we're on the verge of a major, major change in our society," says Rep. Ron Paul (R-Texas). "So they'll keep putting it aside, but then we'll eventually probably destroy the dollar."

The across-the-board cut, or "sequestration," was designed to be so distasteful that Congress would be moved to cut more deliberately. If it doesn't act, $110 billion in projected spending will be automatically cut—half from domestic spending, half from the Pentagon.

"They assume that they made it so bad that they wouldn't accept it, but I don't think they did," said Paul. "They're not even…talking about real cuts. They're talking about cuts in baseline budgeting."

Right, the old baseline budgeting trick.

"If they propose, let's say, a $10 billion increase for next year and cut it down to $9 billion, they say they're cutting 10 percent. But they're not cutting anything, they're only increasing it $9 billion instead of $10 billion. It's done on purpose so that people get confused."

Republican House Speaker John Boehner calls the fiscal cliff a "nightmare."

But why? Trillion-dollar deficits are more terrible.

Cuts of $110 billion would even be good for us because it would keep money in private hands, away from the bloated and freedom-killing bureaucracy.

"When government spending is about $3.8 trillion, you're going to cut $100 billion? That's a deck chair on the Titanic," said Russ Roberts of the Hoover Institution. "If they're actual cuts, I think that would be great. I'd cut 10, 20 percent across the board if I had my druthers. But across the board scares people because they think, 'Let's save the things that are really important and cut the things that are not so important.' (But) that never works."

It doesn't work because every cent in the budget is absolutely crucial to someone.

Lately the media are focused on the $400 billion in tax increases that make up four-fifths of the fiscal cliff. We're told that if the Bush-era tax rate cuts expire and the spending reductions kick in, catastrophe will follow.

"The tax increases sound scarier. But we have a trillion-dollar deficit!" Roberts pointed out. "So to me, the idea of raising taxes is probably a good idea. It says this spending that we've been doing is not a free lunch."

I'm not convinced that giving politicians more money is ever a good idea.

And won't the wealthy high-earners find a way around the higher rates? When rich people do that, much of their money goes to lawyers instead of consumer satisfaction.

The other thing that scares Washington are the automatic cuts to Pentagon spending. "These draconian cuts represent a threat to our national security," say Republican Sens. John McCain of Arizona and Lindsey Graham of South Carolina.

"The Pentagon is hysterical about it," notes Ben Friedman of the Cato Institute. "But it's about 10 percent, which would bring us roughly back to where we were in defense spending in 2006 … adjusted for inflation, not exactly a crisis year in the Pentagon. They've gotten very spoiled at the Pentagon. They had years of luxury."

Automatic cuts might even be good, said Friedman.

"We need probably bigger cuts in the defense budget because we do too much. This will force us to make some choices. We try to be everything in the world … pretending that every unstable country is a threat to us."

I won't lose sleep over automatic spending cuts. The "fiscal cliff" frightens me less than the bankruptcy cliff.

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  1. Republican House Speaker John Boehner calls the fiscal cliff a “nightmare.”

    But why? Trillion-dollar deficits are more terrible.

    Not to them, John. Congress gets its power precisely from spending. They made enough promises and deals to special interest groups, clients and cronies that they cannot simply back off without losing their support.

    The politicians will meet and fret and hold press conferences and predict disaster. Then they’ll reach a deal.

    They will reach a deal, all right – but for all of us, it will be a raw deal.

  2. Why is it half and half? Why not across the board?

  3. People sure do like to use the old “deck chairs on the Titanic” meme. Shows what a bunch of original thinkers there are in this country.

    1. “A barnacle on the Lusitania“?

      “A burned-out lightbulb in the WTC towers”?

      “A pothole on the Tacoma Narrows Bridge”?

      1. A staffer on the Romney campaign?

        1. A diplomat in Benghazi?

      2. “An accountant in the Obama Administration.”?

    2. Not as much as they like to call things draconian.

    3. Which is why we still have that stupid “-gate” suffix for nicknaming controversies.

  4. Nice work, John.

    Too bad nobody listens.

  5. I am becoming increasingly convinced that letting ALL the tax cuts expire is the necessary first step. Nothing will be done re: spending until people see first-hand the cost of their particular free pony.

    1. I agree with you in principle, but what is going to happen in reality is exactly what happened during the Clinton years: taxes will go up, defense spending will be cut, but spending on everything else will go up even more, completely negating the defense cuts, and then some.

      In other words, the grand plan that Obama and the democrats designed years ago is looking more and more like it might actually come to fruition, because the republicans are so fucking stupid that they fall into the same trap over and over and over again.

      1. but what is going to happen in reality is exactly what happened during the Clinton years

        I’d give my left nut to have things be exactly like they were during the Clinton years.

        1. I’d give my left nut

          How come nobody ever offers to give their right nut? Is it special in some way? Mine seem about the same.

          1. If I had to choose, I’d pick the right one(Curley)… It’s the runt of litter and tends to get pinched by my underwear.

            The big one in the middle (Moe) is really my favorite, though.

            1. LOL in the middle. great implication.

        2. Chopping the Army and Navy in half is going to yield ever lower returns against rising spending.

    2. One could argue that once a particular level of spending is set, you can’t actually lower taxes, only adjust what portion of it occurs through “visible” taxation and what portion occurs invisibly through inflation.

      1. And then, really, why have taxation at all? Because that would make the scam too obvious? It’s certainly not done for the sake of efficiency.

      2. That view is partially correct. The government drag on the economy is the NPV of spending.

        Taxes and borrowing are important because of their behavioral effects – not the net drag.

    3. their particular free pony

      Speaking of overused memes. No offense to your point wareagle.

      1. I’m open to new phrases.

        1. Good to know.

      2. I’d give a unicorn fart for someone’s pony to see a rainbow of hope for some tophat and monocled old white male to loose the anchor babies from the server squirrels of our imagination and have monkeys fly out of my butt and come up with a new memes.

        I’m super serial.

        Also, fried chicken.

        1. There’s more memes there than you can shake a stick at. And you can take that to the bank.

          1. and at the end of the day, that’s the bottom line.

          2. And he probably typed that while Tebowing, Faith Hilling, and cat breading all at the same time.

            1. I’m a big fan of Taylor Swifting.

            2. Wow, you can’t even swing a dead cat without hitting a meme now. There’s three or four within spitting distance.

              1. using the word “meme” all the time sounds gay.

        2. You left out “boondoggle”!

  6. Let the sequestration happen, then the repubs can maybe gain a little credibility in their desire the shrink govt.

  7. No, fuck you, cut spending!

  8. I had to have three jobs while going to college to support my lavish lifestyle and my portfolio of credit cards. I was only able to climb out of that debt abyss by cutting up my cards and continuing to work over 80 hours a week, and living the material lifestyle of a hobo. I think the US gov needs a little austerity shock, it makes our gov do the same thing all of us schmuck peons had to do — work harder and buy less.

    1. “I think the US gov needs a little austerity shock, it makes our gov do the same thing all of us schmuck peons had to do — work harder and buy less.”

      Obozo can lie about torture, killing people, war, civil liberties and get re-elected.
      But stop the flow of free-bies and the voters would have him hung by the thumbs in a week.

    2. clearly you need re-education if you believe that govt sees itself in any way as being equivalent to “us schmuck peons.” Why if not for the benevolence of govt, most of us wouldn’t be able to tie our shoes correctly, let alone make the difficult decisions like mass produced mayo or artesan.

  9. I think the US gov needs a little austerity shock, it makes our gov do the same thing all of us schmuck peons had to do — work harder and buy less.

    Haven’t you heard? The federal government is not like a household* budget!

    *Unless, of course, the householders in question are counterfeiters.

  10. Republicans screwed up (again). This should not have been cuts as an absolute number, but as a percentage just as the tax increases will be. Democrats want to cut defense spending, which is what the “fiscal cliff” do. Additional cuts will be obtained from the wars winding down and spending will be transferred to domestic pork. Democrats want this. They get tax increases plus cuts in defense spending. They will then propose a bill to reduce taxes on anyone making less than $250,000 and dare Republicans to stop it.

    1. O’Rourke Circumcision Principle: you can take 10% off the top of anything.

      Start with that.

    2. They will then propose a bill to reduce taxes on anyone making less than $250,000 and dare Republicans to stop it

      That is ridiculous. Democrats want to steal from the working class as much if not more than the Republicans. Don’t kid yourself.

  11. The US debt, including various unfunded liabilities, exceeds Greece’s on a per capita basis, and the US seems even more reluctant to make the requisite spending cuts. If I’m going to live in a bankrupt nation, all take the one with consistently nice weather, good yogurt, and baklava. Also the light blue and white motif is very easy to decorate with…

    1. The US debt, including various unfunded liabilities, exceeds Greece’s on a per capita basis

      Yes, but the per capita income in the US is far greater than that of Greece.

      The greater your income, the more debt you can afford to pay back.

      In theory.

      1. That’s true, but I think the consequence is just that the US will be allowed to dig its hole deeper..

  12. I won’t lose sleep over automatic spending cuts. The “fiscal cliff” frightens me less than the bankruptcy cliff.

    That’s because you’re a racist, John.

  13. We should have a Fiscal Cliff every year.

    1. That actually made me laugh

  14. Suppose they let it go? Lots of finger Pointing then a new congress gets to be partisan

  15. what the best topic on this site with the nice blog
    Republican House Speaker John Boehner calls the fiscal cliff a “nightmare.”

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  17. Fiscal cliff = kabuki theater. This is a final examination for the GOP. Do Republicans stand for anything at all? I don’t believe they do. I favor the Tea Party. They stand for something. Lower taxes, stop spending, stop borrowing, shrink government. No discussion of social issues. Social issues are losers. Why don’t some eastern establishment GOP billionaires buy up some television networks and newspapers? Do they care about the rest of us being libeled as racists? Do they care about the middle class disappearing? I don’t think they do.

  18. Turnin’ Japanese, I think we’re turnin Japanese, I really think so!

    237% debt: gdp.
    continual money printing
    bringing BOJ fully under political control
    exports falling off a cliff named chinese demand brought about by chinese boycott (who needs bond vigilantes!)

    Will Keynes die before the US dies? Will we listen?

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