With Wall Street hitting new records,(which really arenât records at all) as Washington manufactures its latest fiscal crisisâthe ubiquitous budget sequestrationâObama could do much worse than to simply continue the laid-back style that earned him the early title of âNo Drama Obamaâ. Itâs actually quite simple to explain why doing nothing at all is exactly the right strategy for him at this point in time.
Despite the frenzied panic from anti-austerity activists (like me) who have hard data to prove austerity in a weak economy is a recovery-killer, to the cartoonish school-marm fretting from corporate shills extraordinaireâlike Kudlow & Company on CNBC âCorporate Narks Bullshitting [dumbass] Consumersâthereâs just no need for President Obama to negotiate a truce in the current budget war.
Rather than insisting that Republicans must âpayâ for Democratic spending cuts by agreeing to higher taxes, the president can simply do nothing or, at most, propose a much more amenable deal to both sides and everyone could quit tuning in to all the fake news on the faux ânewsâ newscasts/magazines/online political gossip rags/and cable fluff-piece/propaganda channels currently being produced by entertainment companies as a method of ginning up more advertising dollars.
If Republicans eased the sequester and demanded no new spending cuts, the Democrats could promise not to try and raise any new taxes. This simple solution could be sold to their respective constituents by both parties as a win. Yay for my team, as it were. More importantly, it might just prompt the hand-wringing âNewsâ pundits on the entertainment networks posing as ânews-peopleâ to shut up and find some way to convince their entertainment overlords to let them do some actual news reporting.
Why It Will Never Happen
It will never happen of course; it just makes too much sense. But Republicans would have satisfied their pledge to stop higher taxes, while Democrats would have stymied the efforts by Republicans to gut government.
Problem solved, right?
Oh hell no.
This ceasefire would do nothing to quell the frustrated public, half of whom have bought-in the the idea that spending is a runaway train[even though spending has been DRASTICALLY REDUCED under President Obama already] to reduce deficits or government debts. But doing nothing on deficits could be the perfect policy for the U.S.; at least at this particular point in time.
As Iâve said for years on this web site, economic cycles simply do not conveniently fit into political cycles; and with each election, we try to meddle in policies that most Congesspeopleânot to mention most Americansâsimply do not understand. Of course, just as the political pendulum, which has finally begun to swing in the direction where the rest of the modern world is waking up to the reality that austerity does not work during recoveries , (see Eurozone, UK, etc.), the GOP finds a way to display its ineptitude in dealing with anything fiscally substantive by letting the across-the-board austerity cuts to go into effect.
There are, after all, convincing economic arguments for poo-pooing the Republican âdeficit obsession.â[Except for self-proclaimed economic idiot savant Joe Scarborough of course.]
1.There is absolutely no market pressure on the U.S. government to reduce borrowing. To the contrary, investors are so desperate to lend to the U.S. Treasury that endless amounts are being raised in the bond market at the lowest interest rates ever offered. Ever. While these low rates are partly due to Federal Reserve monetary policies, private investors have nevertheless been swarming all over U.S. bonds. Since nobody is forcing American individual savers or foreign sovereign wealth funds to lend money to the U.S. government these lenders apparently still believe that U.S. Treasury bonds are a good investment.
2.Yes, the stock market has largely said âmehâ to the long-term unemployment problem and simply borrowed free money from the banks to invest in modest return investments that are producing profits without demand. In this respect, it is, at best, a fake recoveryâ¦at worst, another house of cards that will eventually fall without economic growth and the demand that comes with it. Why anyone who took Econ 101 has forgotten that demand is the gasoline for prosperity, not lower taxes, I cannot for the life of me understand.
3.The U.S. economyâs modest recovery since 2009 has already gone a long way to solve the deficit âcrisis,â assuming there ever was one. The federal deficit has been cut in halfâfrom 11.1 percent of GDP in 2009 to 5.3 percent this year. Let me say that again in case you sped-read past that or fell asleep two paragraphs up. The federal deficit has been cut in halfâfrom 11.1 percent of GDP in 2009 to 5.3 percent this year. It will halve again, to just 2.4 percent by 2015, without any further fiscal action, according to the Congressional Budget Office. If this weekâs spending sequester were completely undone, the CBO deficit projections for 2015 and 2016 would still be around 3 percent of GDP, well within a comfortable range â and that projection assumes very weak economic growth. Iâm talking weakness like 1.4 percent this year and 2.6 percent in 2014. If growth accelerates, which seems increasingly likely, the deficit will shrink much faster without any need for further fiscal policy changes. Neither tax hikes nor additional spending cuts would be necessary. Thus the claim that U.S. fiscal solvency requires that the sequester be replaced, either by other spending cuts, or by tax hikes, is simply and unequivocally false.
4.Government deficits will continue to support what is still a very frail economic recovery, for the standard Keynesian reasons explained in undergraduate courses of Economics 101. While some economists initially disputed the stimulative effects of fiscal policy after the financial crisis, the evidence of the past four years, has been thoroughly evaluated by myriad esteemed institutions such as the International Monetary Fund and Organization for Economic Cooperation and Development, and the results have been pretty convincing: The impact of fiscal policy on growth has turned out to be even stronger than pre-crisis theories and models implied.
5.Finally, there is the legitimate fiscal challenge that the U.S. does face in the distant long-run, due to the aging population and the swelling costs of healthcare. But the problem is not with Medicare. The problem is with exploding healthcare price gouging; which explains Paul Ryan and the GOPs obsession of destroying Medicare. Once privatized, there will be no way to provide healthcare for anyone is not wealthyâthe GOPâs sweet spot. T
6.The challenge of maintaining Medicare solvency has nothing to do with tax and spending decisions made today. If healthcare costs continue to grow faster than the economy, they eventually become unsustainable, regardless of the starting level of deficits and debts. Even if we magically, totally eliminated todayâs deficits it would only defer Medicareâs inevitable bankruptcy by a few years. To make Medicare financially sustainable with constantly rising healthcare costs, tax rates have to rise accordingly. The only alternative is structural reform to stop medical runaway inflation. Reducing U.S. drug prices and doctorsâ incomes to levels comparable to the much lower levels in effect in other advanced economies appears inevitable as well, but only after people start dying in sufficient numbers to bring about substantive change in how we administer and bill for healthcare. Anyone who has ever been in the hospital and looked at the bill has seen the $5.00 charges for aspirin or the $6.50 for a band-aid.
A resolute fight to reduce medical costs is the actualnecessary stipulation to secure the U.S. government against national bankruptcy. But that campaign is not being mentionedâthere is simply too much money [legalized bribery] from lobbyists greasing the palms of legislators to bring this obvious condition to the forefront of American thinking.
An astounding 52% of Republican House and Senate members who have left Congress since 1998 have become lobbyists!!
And it doesnât help that television ânewsâ organizations have become shills for entertainment rather than for the benefit of the public knowledge base. And it has nothing to do with the battles taking place in Washington about sequestration, tax loopholes and Treasury debt limits. Just advertising dollars. Conflict brings ratings, ratings bring ad dollars. WWE Smackdown Raw has nothing on television news.
Unfortunately, political chicanery makes any sort of serious debate on medical costs very unlikely before the end of the decade, when the demographic pressures (aging population) on Medicare [and everyone else for that matter]will become literally insupportable. Insurance companies will continue to get sweetheart deals, and two sets of books will continue to be maintained by healthcare insurersâ¦one for tax returns and one showing the actual profitability of pharmaceutical and heealthcare companies.
Besides, any decisions made today are not binding on future congresses and it is perhaps more democratic to leave such decisions for voters in 2020, which is when the big decisions on how to balance higher taxes against less comprehensive medical coverage, lower incomes for pharmaceutical companies and doctors, or allow a lot of elderly Americans to die more quickly, will be at a true tipping point.
After all, if the GOP gets its way, by then their biggest problem will be how to dispose of the bodies of the massive number of dying elderly people and whoâs going to pay for it? Meanwhile, finger-pointing battles will rage in Washington (and on teevee of course) over taxes and non-entitlement spending.
This will only distract attention from the real long-term issue of medical costs, while over-zealous, and ill-advised efforts to cut deficits will slow economic recovery, making these costs harder and harder to address without radical changes.
Until U.S. politicians are forced to tackle the genuine medical cost crisis, the best course of action for the President, given this group of legislatorsâ penchant for dealing with the phony, albeit telegenic, deficit crisis, is to do nothing at all. At least this largely incompetent group of camera-addicted, cowardly, hypocritical tapeworms in Congress wonât do any additional damage while laboring though their sweatshop-like 129 days of âwork daysâ every year [for full lifetime pensions and healthcare no less].
The real question, given the way the GOP has systematically succeeded in stacking the deck in order to bankrupt the Postal Service or personal gain, what will they spend those 129 days doing, since mostly what they do now is re-name post offices and vote repeatedly to repeal Obamacare?