Archive for November, 2012

Politics and Economics at Odds in Fiscal Cliff Debate

Friday, November 30th, 2012

Originally posted at the Coalition to Reduce Spending

(Note: I am a member of the Board of Directors of the Coalition to Reduce Spending)

With debate over the “fiscal cliff” heightening, there’s a lot of alleged brokering going on amidst the politicians in DC. Supposedly, by Christmas, a deal will be struck to avoid what is being called a perilous combination of tax increases and spending cuts — although we reject the notion at the Coalition to Reduce Spending, that a small reduction in proposed future spending increases constitutes a cut, despite the various claims from politicians on both sides of the aisle.

While this deal making goes on, and the federal government continues to spend $2.08 million per minute, there’s a lot of heated political rhetoric about how this problem should be dealt with. Unfortunately, all of the proposed solutions on the table seem to be more politically convenient than they are economically viable.

Analyzing the fiscal cliff debate at the Cato Institute, Michael Tanner lays out some facts surrounding the whole debacle that are worth noting. In particular, Tanner has some hard numbers about economic realities that, unfortunately for the DC brokers, don’t line up with their political priorities.

Per Tanner:

“President Obama has called for $1.6 trillion in tax hikes over the next ten years, which would amount to just 16 percent of the combined deficits that we are projected to face over that period. In fact, the president’s proposed tax hike doesn’t even cover the $2.6 trillion in spending increases that he has called for over the next ten years.”

This is a key point that seems to go unaddressed in the DC echo chamber, because admitting it would require politicians to actually do the one thing that would solve the problem: actively reduce government spending. But because this is politically difficult to do, the obvious math is avoided as a topic of discussion.

Additionally:

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Peter Schiff on the Economic Perils of Deficit Spending

Friday, November 9th, 2012

Originally posted at the Coalition to Reduce Spending

(Note: I am a member of the Board of Directors of the Coalition to Reduce Spending)

Economist, best selling author, and nationally syndicated radio host Peter Schiff, who serves on the Coalition to Reduce Spending’s Board of Advisors, recently put out an episode of his Schiff Report series in which he breaks down the political and economic situation in the face of President Obama’s reelection, accompanied by little change in the House and Senate.

While we think it’s certainly worth your time to watch the entire clip (it’s 16 minutes long), we want to highlight the part in which Mr. Schiff makes a very timely point about the real crisis America will inevitably face if we keep up this profligate deficit spending and refuse to make any real cuts to federal expenditures, which have been growing exponentially at unsustainable rates. (Our current debt to gross domestic product ratio is 105%, meaning the federal government spends more than our country actually produces in the aggregate).

We suggest that you watch this video starting from the four minute, forty five second mark, where Mr. Schiff begins discussing the long term economic perils associated with our government’s spending habits, with a particular focus on what’s next given the recent election results. His specific focus on the spending issue lasts for about two minutes.

As Mr. Schiff eloquently explains, simply because Europe is currently dealing with a worse debt crisis, which has the impact of temporarily muting the extent of the one the United States faces, doesn’t mean our day of reckoning will never come. Sure, the dollar is still the world’s reserve currency, which gives us some temporary security. But the notion that such a scenario will last forever isn’t supported by the facts, as Schiff notes.

Like Schiff says, the media is very focused on the upcoming “fiscal cliff,” in which the politicians in Washington face the prospect of tax cuts expiring coupled with a “sequestration” debate surrounding whether or not to actually cut spending (shrouded largely in accounting tricks that claim reductions to projected spending are actual cuts – but that’s an issue for an entirely different post).

This situation exists in addition to an upcoming discussion about raising the debt ceiling yet again. But as Schiff points out, we’re headed for an inevitable fiscal cliff of some sort. The question is, once we go over it, will we continue to pursue the wrongheaded policies of unsustainable spending and loose monetary policy that got us to this point? Or will we work toward a sane approach, in which Americans have healthy debates about the proper role of government, but agree that immoral generational theft through a several trillion dollar national debt is fundamentally wrong and economically unsound?