We Have Seen the Enemy, And It Is Not As Fearsome Now

...Let's be done with the Fiscal Cliff

A couple of years ago, the world was divided between those who thought we might yet plunge into another Great Depression,  and those who thought their Depression-type Keynesian responses might lead to a wreck of the ship of state.  Fears of debt-fueled stimuli added to fears that demographics would drown us with Social Security and Medicare costs.  “Change something!” they cried, like the mate on the bridge of the Titanic.  We now find ourselves in a corner… but is it in a sinking ship?

Tax reform is the first solution the parties have agreed to.  Unproductive subsidies are low-hanging fruit.  So are questionable deductions… but let’s keep in play the word “questionable”.  Many of these are integral to specific business decisions.  The Tax Reform Act of 1986 suddenly curtailed Historic Preservation Tax Credits, ruining investors in publicly-responsive projects.  Proper studies of subsidies, deductions and credits will require time.

Simple tax rates could be addressed right away.  Were we not paying slightly higher rates, prior to the Bush cuts? Can we place fully 100% of the burden on one class, the “rich”, and expect to have a healthy political dynamic?  It’s hard to argue we should beg from the rich or borrow money from foreign countries to subsidize our FICA taxes, when by paying about 15% more than what we are paying now we could cover the cost of benefits more of us will enjoy longer in part because of our increasing life-spans.  We should all pay a little more in taxes, even if just a very, very, little more, not as much as we did pre-Bush.  There is no reason why the upper middle class cannot take even a wee step in the direction of paying the same taxes they did in a pre-Bush, pre-McMansion mentality. 

Then comes the subject of the short-term spending cuts – those that are at least emotively critical.  An 11^th-hour formula could be an across-the-board cut of 5% to every agency – adjustments later as needed.  Those who have had to bring a construction project back on budget understand the institution of a “haircut” as a community experience.  If you absolutely have to cut 5% from an agency’s operations, you re-schedule undertakings, simplify them, bargain harder, allow a little attrition to occur, have a little Chris Christy style heart-to-heart with overly-demanding public service consumers at the “counter”, or resort to the refreshing discourse or a masonry foreman with his crew as he seeks to beat a storm front:  “Push!  Keep it moving! Push!” The crew of a good foreman knows this will only last to a needed break, and wouldn’t have it any other way.  So will properly-led government workers.  The business economy will not be as concerned over a 5% federal cut as over total uncertainty over a line of business, because they have faced 5% cuts themselves and know very well business can go on.

Well, that’s our posture for an eleventh-hour plan for the immediate Fiscal Cliff issues.  It can be accomplished with a modicum of faith that the long-term issues now have enough attention that they can be addressed within a sane time frame that Congress can control.  With 535 members of the House and Senate, why not 50 small committees to each properly study maybe 4 issues over 2 years – a couple of hundred specific aspects of our quest to bring our long-term finances under control?  Why not disallow bundling, so their work will have the best chance of producing results, or allow a line-item veto?  A lot of little and indisputable steps like cutting outright fraud in Medicare and having Medicare buy patents on drugs it buys so many of – if that can be shown to be an economic winner – would have as great an effect as packaged bills that attract televised ideological posturing spectaculars. 

How about eliminating earmarks?  How about letting the government return to creating money the constitutional way for certain purposes, by printing it, without buying every dollar needed from the private banks of the Federal Reserve System, at the cost of a significant portion of the national debt?  There are things we could do to build the economy without costing one cent to the national debt through borrowings, or through guarantees or revenue losses, as described in our last newsletter.  More ideas will come, from us and many others.  In fact, there are a lot of good ideas we can explore, if we nick away at the problems one at a time rather than through super-committees and marathon bargaining sessions where no one even knows exactly what is being talked about.  We can get past this hurdle of a created deadline without swallowing the “Fiscal Fly in the Ointment” – a better term than we have been using - at a time when the economy is, after all, improving.  “Bully!” we think T.R. would say.                     

After the Surgery, How to Save the Patient

The surgery over, Dr. Simons checks on the patient. With him are three interns – two who are certain they want to practice medicine, and then Marlene, who is uncertain about whether she might rather become an economist.

Dr. Simons doesn’t like what the monitors show. He listens here and there with his stethoscope and places his fingers on key arteries and fleshy areas. “It is important that the blood be flowing throughout the body”, he explains. “I am looking for signs of a clog, signs of blood building up in one area and not circulating properly. The heart must be beating strongly enough, and efficiently enough, and the blood pressure within bounds. We must also be alert to impurities in the blood. Why do you think this patient is recovering slowly?” he asks the interns.

Paul, eager to impress, suggests that new European cure. “Bleed the patient. It will take out the bad humours and eventually restore the patient to health.” “Oh sure, just like austerity cured Europe’s economy”, quipped Marlene. “What?” says Paul, “We are talking about blood and the body here, not money and the economy.”

Roger disagrees. “This patient’s recovery is too sluggish”, he declares. I think we should put more blood into the body, but spike it with caffeine, like the energy drinks we use to keep awake. That will stimulate the patient back to health.” “I couldn’t agree less”, says Paul. “This patient is in fragile health, and a big dose of caffeine in the bloodstream would act like a toxin. Whoever heard of giving a transfusion of a blood-caffeine mix? The toxin would do as much harm as the blood does good.”
“Well, it’s done all the time in economics”, Marlene stated. “Consider the American Recovery and Reinvestment Act. Didn’t we pump money into the economy, and debt at the same time, by using Federal Reserve Notes as the basis for the money infusion?”

“I do not need the boldface, Marlene, and I must bring this conversation down to earth” says Dr. Simons. This patient has lost blood in surgery, and needs a transfusion. Fortunately, he has provided two pints of his own blood pre-surgery. Assuming they have not been hoarded away somewhere or impounded for some other purpose, they will be available to restore him to health. Otherwise, we will have to resort to the blood bank.”

“Two pints”, interjects Marlene. But isn’t that just a small part of the total amount of blood in the human body? A margin, as we would say in economics?” “It is, but for reasons that will be later explained, it will do nicely. Two pints of blood, and not mixed with any foreign substance that would act as a toxin – like caffeine, Roger, or like… debt, if you prefer, Marlene”. “So what you mean is, you want to use the ‘United States Notes’ of blood instead of the ‘Federal Reserve Notes’ of blood. You do know the difference....” “Yes, a prior life… but we must talk later about your lack of subtlety”, said Dr. Henry C. Simons. “A two-pint transfusion of unadulterated blood, STAT.”

There followed a talking-to about lack of subtlety (“I thought it important, considering most people only think of such things while multi-tasking a mouse, donut and coffee before the real day’s work begins”). Marlene’s ears stung as she made her way home – a meandering, pensive walk it would be – around Washington Circle, then right at Dupont, for the long walk home down the avenue.
Hallowed ground here - but so lifeless, this morning, after what she had just been through…ivory towers on the Left, ivory towers on the Right, where she knew the great minds were beginning to ponder, “What do we dare talk about today? Must we start out the new year pretending again that the cause of the recession-and-debt was fiscal-fiscal-fiscal, or dare we to finally step on some big-money toes and get to the heart of the matter (so to speak) - the malfunctioning monetary system?”

From the moment Dr. Simons had seen the monitors askew, he had realized a correct diagnosis and timely action were imperative – a necessity of working in the real world of medicine; an example to other professions. “I want to live that daringly, that decisively”, thought Marlene to herself. Maybe she would stay in medicine, after all.
____________________________________________________________________________________________