Friday, November 09, 2012

Hanging from a cliff

The day after Obama won his second term the markets took a bit of a tumble. The Dow dipped below 13,000 for the first time in a few months. US Congressional gridlock and the ongoing crisis in Europe are mostly to blame. What is more interesting, even if it's unsurprising, is the rush to bonds- US government bonds to be exact. Indeed, the yield on ten-year treasury notes dipped as low as it has since May. Even with our ratings downgrade (which no one now cares about in the slightest) and huge debt, it is cheaper than ever for us to borrow money. We are still the safest piggy bank out there. 

With the "fiscal cliff" of expiring tax cuts and automatic spending cuts looming, the spirit of compromise is being sprayed into the air like a bottle of Glade mountain berry. Democrats are fond of saying we need a "balanced" approach to reducing the deficit. Nominally this means some tax increases along with spending cuts. Republicans are now, apparently, open to some sort of "new revenue." What this means is unclear. Closing loopholes sounds great, as the word "loophole" is synonymous with unjustly escaping punishment of some kind, but what if that loophole is the earned income tax credit? That's not so good for most of us. Certainly Republicans have made it clear they aren't at all open to a capital gains tax, or financial transaction tax of any sort for that matter. (We could switch the word "tax" to "fee" if that makes people feel better?) Both parties agree, despite the record-setting cheapness of our borrowing costs and the weakness of our economy, we must focus on the debt.

The election, however, frequently drifted away from the economy. Liberals, with some help from idiotic Republicans who couldn't shut up about rape, made social issues take the forefront several times. Gay rights, women's reproductive rights, voter rights, and even though the candidates barely mentioned it, immigration. While all of these issues (particularly immigration) have a great deal to do with the economy, most people's thought processes separate them. It wasn't too long ago conservatives loved to start warring over our culture, but as America becomes more civilized, it appears they can't win general elections on these issues anymore. One can hardly blame liberals for co-opting this strategy, but they don't compliment it with coherent economic arguments like conservatives tend to. Because of the little difference between Republican and Democratic economic philosophies (and I use that term loosely), small things get exaggerated and the focus shifts elsewhere. If one party knows they can win on social issues, they hammer away at it. 

While liberals have seemingly won the majority of battles over social policy the last few decades, they have decisively lost the war over the economy. Despite the vast amount of evidence proving government spending is crucial to regaining levels of economic growth needed to bring down employment, there is no one (few notable economists aside) defending "big government." There is no one saying "right now, debt really isn't that important." We have an economy producing way under its capacity and if the word "stimulus" is mentioned, people are still worried about inflation. The stimulus we did get was full of the same old supply-side policies that simply didn't, and won't, spur the economy in any meaningful way.

I realize government spending won't forgive the underlying contradictions in capitalism. I also realize government spending is a sorry substitute for the huge transfer of wealth from the top to the rest of us that is needed. But it is a step in the right direction. Our country is out of date. We are in dire need of an infrastructure upgrade (especially our railways, they are poor by last century's standards). Our internet speeds are laughable. Education. Obesity. The list goes on. All of these grand projects are the sort that government has historically had to address. This spending could, and should, be a no-brainer. What better time than now, when unemployment is high and our borrowing costs are low? It would make the life of millions of people measurably better. It would create new revenue for the government, some in the short-term and lots in the long-term.

Right now, however, we don't have a political party that even wants to make that case. (Yet anyway.) The best we can "hope" for is a "balanced" focus on, of course, debt. (Even the radical left is obsessed with debt.) The ruling class of this country wants a modern developed state to protect their interests (including history's most expensive imperial war machine), but doesn't want to pay for it. Some think this may hasten their downfall. I'm not sure. But election after election, I get the feeling a cliff is an apt metaphor for more than just a few tax increases and spending cuts. 

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