Who is “Fiscal Cliff”?

whois-fiscal_cliff

“Fiscal cliff” is a manner of speaking, not a fact of life. The trickle down economic theory holds that higher taxes automatically lead to economic downturn. We know, however, that economic history does not bear this out. We also know that severe cuts to public spending and social services limit the power of the Main Street purse, both consumers and employers. That most certainly does constrain economic activity.

The phrase “fiscal cliff”, derived from the metaphor “to go over the fiscal cliff”—itself derived from a visual analogy to an imaginary line graph tracking government budget calculations year on year and the impact some presume they will have on GDP—has been so often repeated during the last two months that it now seems to be a proper noun, i.e. Fiscal Cliff, either a person with an oddly descriptive name or an established institutional promontory permanently occupying the outer edge of our dysfunctional budget-making process.

To be honest about the whole thing, there is no fiscal cliff. That said… something like one might some day show up on some of those line graphs members of Congress are so fond of having their staff produce. You can see what one looks like if you make a line graph, for instance, of what happened to government revenues upon passage of the 2001 Bush tax cuts, which eliminated $2 trillion in taxpayer-sourced investment capital in one shot.

That particular sudden decline in government revenues was severe enough to be graphically rendered as a “fiscal cliff”, but the Bush administration’s well documented determination to increase spending by record amounts even as revenues declined meant the collapse of capital in the private sector came not suddenly, but seven years later—in the summer and fall of 2008, after the laborious inflation and deflation of a bubble economy based on home lending practices rife with fiction.

Unlike the destabilization of climate patterns across the world—which is already ongoing, has been evident for decades, and is now visible in extreme weather events during every month of every year, on every continent—the Fiscal Cliff proper has not yet become reality. It is, in fact, little more than a presumed set of economic trend-lines, projected out beyond our current experience, based on theory. Part of the logic is rooted in supply-side theories that have been proven wrong over and over again, but another part of the fiscal cliff talk is about Keynesian economics, which have been proven helpful at times of economic gloom.

It is not exactly true to say the so-called “fiscal cliff” is a fiction, but it is closer to true than to take the “fiscal cliff” for a foregone conclusion.

There are too many economic and political eventualities to consider, including the fact that the predicted collapse depends in part on the United States no longer being able to “borrow” by selling bonds—and that particular version of budgetary Armageddon looks ever more improbable, since the governments of world-leading economies across Europe are currently nowhere near as stable as the United States, and China is experiencing a slowdown in its record rates of growth.

For most of us to get a grip on the meaning of the “fiscal cliff”, it will be necessary to reframe the “cliff”, the steep and immediate decline, not as “fiscal” per se, but linked to GDP—our gross domestic product. There is the “haircut” theory, or in this case a “crew-cut” theory, that holds that as economic output declines, suddenly, so will our fiscal health, because there will be a vicious feedback loop, where cuts to government spending, coupled with tax increases, drain the private sector of capital, and reduced spending means a reduced tax base, and so declining revenues.

The doomsday scenario says that vicious cycle will be impossible to break, because increased government spending will not be an option, and further tax cuts will be unaffordable. This scenario, many believe, is not credible, because just as there is an upper threshold above which volumes of free cash cannot simply be invented out of thin air, there should also be a lower threshold below which the total wealth of the world’s leading economy cannot venture.

As of December 2, 2012, we can say the following:

  • if at current rates of economic expansion,
  • and the ongoing slowdown in home lending and property values,
  • in connection with major new reductions in spending on government services,
  • tax cuts for middle class families and working families,
  • along with the payroll tax cut, are not renewed, then…
  • there will be a depletion of immediate spending capital in the consumer economy.

It is not true, however, that expanding the upper-income tax rate from 35% to 39% on those making more than $250,000 per year, and only on that income that exceeds $250,000 per year, will drain the private sector of investment capital. The government will return that revenue to the private sector through spending, and wealthy investors will continue to invest, in order to expand that 61% they get to keep by as wide a margin as possible.

Billionaire investor Warren Buffet—an advocate of having his own taxes increased in order to make our budget situation more rational and shore up our economy over the long term—has warned that continuing to drain resources from government is a dangerous gamble that puts taxpayers, communities and ultimately the Main Street economy at risk. “People love to gamble,” he told NPR on Nov. 28, 2012… “people travel thousands of miles to do unintelligent things. It’s a very human characteristic, but it can be very expensive.”

The question we need to ask, before we can really get to the business of solving the fiscal cliff debate is: why do we need pundits, politicians and the press to talk up the “fiscal cliff” crisis to the point where they seem to believe it is an actual mountain outcropping in the landscape of Appalachia, or perhaps in the Rockies or the Sierra Nevada? Why do we chatter, without enough knowledge, until it seems the Fiscal Cliff is a real place that will be there no matter what we do.

The first answer is that the pundits, the politicians and the press do this to absolve themselves of the responsibility of coming up with a way to avoid it. It is real; it is solid; it is made of prehistoric rock formations, and we cannot ignore it. Therefore, to be “realistic” is to simply accept it as a fact of life, and not labor to understand a mountain as if it were just a passing fog. It is comforting, on some level, to believe it is not in our hands.

The second answer is that the pundits, the politicians and the press honestly believe we cannot understand the arithmetic, the economics or the policy complications, and so they need to give us a mascot—Fiscal Cliff—that we can hold onto for a sense of comfort and maybe for guidance, when we are feeling lonely in the night of absent-minded policy-making and non-citizen-focused government. We celebrate this mascot as we do any idol, for its own sake, and for the role it plays in giving us a sense of clarity.

The third answer is that the pundits, the politicians and the press are doing their best to make sense of a complicated problem, that has arisen over several decades of irresponsible policy-making, and we are responsible for taking interest in the policy complications inherent in budgeting wisely and avoiding the fiscal-economic vicious feedback loop that may or may not feel like free-fall, should it come.

The fourth answer is that the term is a red herring—a distraction that takes our attention off the problem at hand. In that case, we have to ask ourselves what we are being distracted from: cynical government? corrupt policy-making? irresponsible hatred of government? a cunning round of strategy among the partisans? some sort of piracy? the best efforts of some not very competent lawmakers? too much money given away to those who don’t need it and so will do nothing constructive with it? our own blindness?

Here’s a couple of ideas I think might help us to see what we are not seeing:

  • Let’s consider that the Fiscal Cliff is a result of persistent unwillingness to adequately fund the services we need, to be the kind of country we believe we should be. 
  • Let’s consider arithmetic: if you don’t provide the funding, the funding will not be there; and, if the funding is not there, the services will decline in quality or disappear altogether.
  • To oppose any and all forms of revenue for government is to be an opponent of quality American government.
  • In a people’s democracy, to be an opponent of quality American government is to be an opponent of the People.
  • A harmonious relationship between the public and private sectors has always been the cornerstone of American prosperity and middle class quality of life.
  • A harmonious relationship between the public and private sectors will help to resolve the budget shortfall crisis.

St. Augustine wrote that he was ashamed to have taken advantage of his parents and his teachers in so selfish a way as to disregard the value of their instruction, while later making use of it. For Augustine, the fact that ingratitude occurred before his later awareness of it—committing the infraction before being aware of what was wrong—was not an excuse; ignorance was, to his view, somehow, always willful, and ingratitude was an irrational and corrosive, self-centered advantage-taking.

Faced with the fiscal cliff conundrum—how do we fund something we are not sure we want to pay for?—we must first be honest about what is at stake. The government of the United States is the manifestation of the people’s revolution against tyranny. If we fund, and maintain, a high-quality public sector, in service of the expansion of the liberty of individuals, families and communities, and the building of an ever broader middle class, then we are doing the work we imagine we are doing; if we fail to fund and maintain such a government, then we betray ourselves, and sin against our own future.

Maybe Fiscal Cliff is our alter ego—that failed citizen who pretends to love democracy, but refuses to be a constructive contributor to its upkeep. Our citizenship, our participation, our demand for a real solution, is the solution.

Education Must Be Leading Priority for Vibrant, Sustainable Future

National priority: world-leading education

The United States of America has been, since its birth 236 years ago, a world leader in promoting universal public education. It has also been a world leader in promoting universal access to higher education and to advanced degrees. That history has made the US a leader in technological innovation and advanced problem solving for two centuries. That legacy is under threat, and our list of national educational aims demands immediate attention.

In the current budgetary and economic climate, cuts to public education, the rolling back of teachers’ salary opportunities, job security and benefits, and the underfunding of financial aid for higher education, are threatening to stunt the quality of education available to millions of Americans. But education is the key to strong, resilient democracy and the only way to build a secure and prosperous future.

The National Strategic Narrative report, from two top Pentagon analysts working for then chairman of the Joint Chiefs of Staff, Adm. Mike Mullen, found that the United States must put top-quality education above all other priorities, privilege the virtues of sustainability in economic and security policy, and leverage mutually beneficial relationships with foreign powers, in order to build a truly vibrant and secure 21st-century democracy, with a global strategy adequate to the challenges we face.

The value of top quality education for the future of any society is almost incalculable: it affects the relative value of all other elements of the economy, and the efficacy of all areas of public policy, governance and democratic process, including security policy and conflict resolution. There is substantial evidence that lack of universalized top-quality education imposes major costs on entire societies.

Those added cost burdens, from economic and policy inefficiency, to counterproductive security actions, degraded infrastructure and sluggish entrepreneurial activity, can degrade the quality of life for most people in a society, degrade the quality of public discourse and public policy action, and undermine national security and economic prosperity, generally.

Lower quality educational resources build into a society patterns of unnecessary waste and degradation. Top quality educational resources build into a society the capacity for vibrant, rapid, innovative adaptation to changes in an evolving landscape. With the 21st century more likely to be defined by an evolving global political and economic landscape, nothing is of more paramount concern than the quality of education available to every last person living within a given geographical area.

Nothing will define a nation’s ability to compete in international markets more directly or comprehensively than the level of educational opportunity enjoyed by its people.

The age of complex informational problem-solving

We are entering an age that is no longer about building industrial capacity or penetrating beyond new frontiers in terms of geographical or spatial exploration. Technology is advanced enough that many new technologies can be mapped out intelligently long before they are within the realm of the practical.

We are entering an age in which the ability of an individual, a company, a region or a nation, to solve problems rapidly, efficiently and with little resulting negative feedback, will be the decisive factor in determining success or failure, prosperity or ruin. Borrowing problem-solving capacity from another society is not like borrowing industrial capacity; there is no way to export the cost while importing the benefit.

If the United States is to prosper in the 21st century as it did during the 20th, if it is to lead on the global stage in a credible way, it has to maintain its ability to be the most credible, open and constructive resource for problem-solving, and that means it must have the best quality human capital, the most talent, the most informed, creative and forward-thinking population.

Pres. Obama instituted one of his boldest and least well-known reforms in 2009, when he replaced the expensive, slow and bank-run system of student financial aid with a more direct system of loans from the government to students, with incentives for repayment, lower interest rates, better access to top-flight institutions, and long-term incentives to make use of one’s talents in ways that benefit the wider economy and the nation.

That student financial aid reform must be a building block, with new initiatives at the state and national levels both to foster not test-score improvements, but genuine improvements in educational quality, critical thinking, creative reasoning and intellectual skills that infuse the landscape of scientific and commercial innovation with real potential for designing and riding the wave of the new economy of this century.

We are falling behind, even in our policy aims

But we are not doing all that we should to promote top-quality, world-leading education. In too man ways, public officials are either looting education budgets to fund unaffordable tax giveaways or imposing counterproductive bureaucratic regimes designed to punish teachers and telegraph student training for test-taking, effectively gutting our educational system’s ability for providing the challenges, the resources and the personal commitment to excellence that we know produce the best outcomes.

As the New York Times reports, a new study from the Center for American Progress and the Center for the Next Generation—’The Competition that Really Matters‘—finds:

  • Half of U.S. children get no early childhood education, and we have no national strategy to increase enrollment.
  • More than a quarter of U.S. children have a chronic health condition, such as obesity or asthma, threatening their capacity to learn.
  • More than 22 percent of U.S. children lived in poverty in 2010, up from about 17 percent in 2007.
  • More than half of U.S. postsecondary students drop out without receiving a degree.

Meanwhile, China is investing heavily in education, planning to build the largest, most holy educated, most skilled workforce in world history. By 2020, China’s current policy trajectory aims to:

  • Enroll 40 million children in preschool, a 50 percent increase from today.
  • Provide 70 percent of children in China with three years of preschool.
  • Graduate 95 percent of Chinese youths through nine years of compulsory education (that’s 165 million students, more than the U.S. labor force).
  • Ensure that no child drops out of school for financial reasons.
  • More than double enrollment in higher education.

Taking it to the local, getting involved

The people of New York City have choices. We are at a moment of reckoning. We can choose to spend money to help transnational corporations pad their quarterly reports or we can choose to fund the world-leading infrastructure for education, innovation, citizenship, transport and public safety we all believe we deserve.

If you want to have a good idea of whether your kids’ school is focused on educating your children for global citizenship and intellectual mastery or simply training them as bureaucracy-reinforcing test-takers, find out how the administrators think about the city’s regime of high-stakes testing.

If your school’s administrators are obsessed with bumping test scores, or frame all discussion of student progress in terms of numbers and data, they are likely applying their own intellectual capacity to harnessing your kids’ intelligence for test-score improvement. These regimes carry with them a powerful psychological reorganization of reality, and whole school systems can find their better knowledge about educational excellence cast aside in favor of dangerous fictions and short-term thinking.

A certain kind of curriculum distortion tends to follow—specifically: the kind that downplays arts, cognitive complexity, advanced reasoning, precise language usage and creativity, focusing instead on how to solve the specific kind of math or reading-comprehension problems found on standardized tests.

If your school’s administrators talk a lot about math and science as skill areas for future growth, but emphasize active learning of art, music, precise language usage, cognitive complexity, advanced reasoning and even physical education, as vital for the healthy development of the individual mind, then they are likely focusing on producing the best outcome for your kids.

Here too, a certain kind of curriculum enhancement tends to follow—specifically: emphasizing students’ ability to experience a wide range of intellectual, physical and psycho-synthetic challenges, so their ability to synthesize the substance of their experience into one fabric of imaginative practical capacity (talent) is expanded and fortified for future application.

Recommendations

  1. Ask for more programs, with richer content, creative practice and physical experience, for your kids.
  2. Ask administrators to do what they are supposed to do—succeed by making themselves, and the regime of administrative labor, invisible. Their work should be so effective that everyone else is empowered, without even noticing the achievement, to do what they do and to excel.
  3. Talk to educators, parents, community leaders, and elected officials about what will actually work to achieve the ultimate goal of top-quality education: making students into fully intellectually self-reliant full-functioning citizens of a vibrant democracy.
  4. Make sure arbitrary qualifiers—like impersonal data, test-score tracking, budget itemization and administrative paperwork requirements—are not interfering with genuine instruction and learning.
  5. Look for opportunities to supplement your kids’ school-hours education, then to bring those kind of activities into the school building or school yard.
  6. In your community and across the local apparatus of policy-making, work to build interest in a full-spectrum empowerment paradigm: an education that builds intellectual, civic and professional value for the whole character and ability of each student.

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About State-level Healthcare Reform Benefits

If your state is run by one of those Republican governors who is still refusing to participate in any way in the implementation of the Affordable Care Act’s state-level health insurance exchanges, here’s what you need to know: not participating makes the implementation more expensive, not less; not participating surrenders state control to the federal government, not the other way around. If your governor is refusing to participate in the creation of your state’s health insurance exchange, your governor is sabotaging your state’s sovereignty in service of a pointless ideological tantrum.

And that matters, to you, whether you know it or not.

Some states will have real market reform, and the state-level authorities will be actively involved in that reform, representing their constituents and steering the process of reform in a way that is most affordable, and helpful, given the lay of the land and the unique circumstances people face in communities across that state. This cannot be said of those states where ideologically captive governors abdicate their responsibility and invite the federal government to do all of the heavy lifting.

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Let’s Elevate Teachers to Build a Better Future

It is National Teachers Day, a day of recognition for one of the most challenging and under appreciated professions. It is a day to stop for a moment the rush of our daily routines and recognize the degree to which good teaching builds a healthy, vibrant future for our families, our communities, and our democracy.

The Climate

There is a culture war taking place in the policy arena surrounding our education system: mayors and governors are demanding regimens of high-stakes testing, in hopes of revealing the quality of education available, along with reasonable means of improving that quality. Teachers are often seen as obstacles to reform, though they may be the most impassioned advocates for reform, and the minds best positioned to see what is needed.

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Bad Tax Policy Has Tragic Consequences

For the last three decades, we have heard that transferring wealth to the top of the income pyramid—to what used to be called “the supply side” of the macroeconomic equation, and is now referred to by the supply-side party, collectively, as “the job creators”—would make everybody else more affluent. We have been told that the natural result of pushing wealth in the direction of the wealthy would be massive hiring, and the “trickle down” effect, as wealth from the top eventually flows to everyone else.

The result has been a steady decline of the American middle class. Median household wealth, when excluding the wealthiest 1%, has declined. The income gap between CEOs and the average worker at their own firms has now leapt from a ratio of about 24:1, in the 1960s to well over 200:1 today. The entrepreneurial class—or rather, those best positioned to motivate major investment in entrepreneurial activity—were given huge amounts of money, and so saw less urgency in investing it.

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The Mystery of the Progressive Open Market

Why is a struggling open market so hard to turn around? The answer is really quite simple: A centrally planned, totalitarian economy is easy to predetermine; in fact, that’s the point. An open market for the trade of goods and services cannot be predetermined, because its governing dynamics depend entirely on the manner in which goods and services are traded, at what volume and by whom, and direct command-and-control is likely an obstacle, not a source of efficiency.

Open markets, in their most virtuous state, foster the optimal distribution of resources, goods and services, and produce generalized value for all involved. It is at this point, where the middle class is the focus, and where it expands by inviting (and making possible) more membership from the less affluent segments of the socio-economic web, that open markets are democratizing in their effects. Intervention, then, needs to be subtle, and favor democratic outcomes, so less central control.

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Big Ideas to Solve the Debt Crisis & Restore the Middle Class

The debt crisis is attributable to “structural” causes, meaning the way the nation’s financing is structured over the next several decades, but also to political and economic causes, meaning both the way we make policy and the way we live and experience the marketplace for trade, credit and consumer purchases. So, we need to implement policies that make serious, sustainable corrections on all three fronts.

Stabilizing debt financing requires the least expensive cost of borrowing possible, i.e. a AAA credit rating and the reputation for 100% likelihood of on-time repayment. It is unhelpful and counterproductive to indicate that the US might not meet 100% of its obligations on time 100% of the time. The long-term solution has to be oriented toward making social services solvent, and reducing the costs of debt repayment.

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