The Obama plan, such as it is, is a joke when you start getting into the weeds of it. The White House counts money that they never planned on spending (such as for the now-completed war in Iraq) as an $800 billion spending cut, which is ludicrous. They're also counting cuts made in last summer's debt ceiling agreement as future cuts. Their plan is riddled with accounting like this.
If the President was as ballsy or as smart as everyone tells me he is, he'd call Congress back into emergency session and introduce the Simpson-Bowles plan and vow to veto anything other than a "clean bill" without any amendments. He doesn't like Bowles-Simpson, but the Republicans don't either, although they won't stop demagoguing and, frankly, lying about it.
Look, I think Bowles-Simpson is the most realistic deal yet presented, but neither party will support it because it forces tough choices on their respective goodies. Therefore, it should be taken off the table entirely during the campaign. And the political benefits to Obama are potentially enormous. Harry Truman did something similar in the summer of 1948, calling the GOP Congress back into session to pass their recently enacted party platform into law. When they didn't, Truman's re-election prospects were immediately resurrected.
In my opinion, America's last best hope is the thing that everything fears most: the so-called "fiscal cliff."
When the 2011 debt ceiling debate failed to reach a reasonable deal, Congress passed and Obama signed a law that implemented a "sequester" if no deal was reached by January 1, 2013. The sequester provides for brutal, automatic cuts to almost everything Washington does, including the big prizes of Medicare and national defense.
On the same day, the Bush and Obama tax cuts also expire. One of the things that I've been saying for years now is that all of the tax cuts should expire, including those for the middle class. First, they've blown a giant hole in the budget for over a decade. Second, they haven't stimulated the economy in any real way. Average U.S economic growth since World War II has been 3.2%. During the Bush years, following the two largest tax cuts in human history, it was not quite 2.1%.
Democrats like playing fancy and suggest that they can raise the revenue they need from the upper class, those making over $250, 000 a year (although Mitt Romney yesterday hilariously suggested that this was the "middle class.) That's nonsense. The money just isn't there. Republicans are actually right in saying that going after "the 1%" and corporations doesn't provide very much in the way of revenue. On the other hand, Republicans also stupidly believe that revenue isn't the problem, which it decidedly is.
More importantly, I think the current debt load is the single greatest challenge facing America since World War II. And goddammit, that requires shared sacrifice. The American middle class is, to a large extent, the problem. Politicians have been subsidizing their fantasies for far too long and even that wasn't enough, so they used their homes as ATMs. Fuck the middle class, those assholes.
Now, I should warn you that going over the fiscal cliff will throw the economy back into a really bad recession. That's a given and I'm not going to lie to you about it.
But here's what you need to know. The U.S economy isn't recovering anytime soon, anyhow. What happened five years ago today when Lehman Brothers went tits up wasn't a recession, the United States had already been in one of those for over a year. What began on September 15, 2008 was a financial panic. Historically, economies take a decade or more to recover from a financial panic. A more contemporaneous example is Japan, which has been struggling for 15 years now. Anyone who tells you that they can create 4% GDP growth in the next four years is lying. Period.
That being the case, now is precisely the time to put the budget in order. No one is going to do it in a robust economy for fear that it'll create another recession, so if not now, when? I'll cite again the Canadian experience, when the Chretien-Martin government enacted brutal cuts (as much as 25% across the board) before our economy had fully come out of the 1990-'92 recession. The difference is that the previous Mulroney government had already put in place huge new revenue streams with the Free Trade Agreement and a national value-added tax.
Yes, it's gonna hurt everybody even worse than they already have been. But if it isn't done now, it won't be done at all until the international bond market does it for you. And the only thing that'll be worse for everybody than the fiscal cliff is a giant increase in interest rates in the near future, which is exactly what will happen if this isn't taken care of soon and in a substantive way.
The Great Depression caused Americans to re-think the role of government in their lives. It was suddenly desirable for the federal government to implement expansive entitlement program for the people. Presidents Roosevelt and Truman accompanied this with a fantastically large standing army (which the Founding Fathers all argued strongly against) and an institutional "military-industrial complex."
Beginning with the Kennedy Administration, it became philosophically acceptable to join large tax cuts with expansive entitlements and an activist foreign policy, which had become the conventional wisdom by 1980. This created a culture of debt, both personal and public. Contrary to the fantastic ability of Republicans to dissemble about everything, Barack Obama did not create this, he just happened to be lucky enough to be holding the bag when the bills came due.
To understand this, you need to understand how America became an economic superpower in the first place. The simplest way I can put it is to say that the parents of American prosperity in the 20th century were Adolf Hitler and Hirohito.
The war restarted America's industrial engine while also destroying the economies of all of its major industrial competitors. Most of Europe endured food rationing until the late 1950s and their industrial output was insignificant for almost thirty years. Asia was even worse off, with the Second World War not really ending there until the fall of Saigon in 1975. China didn't reverse it's Maoist policies and begin to realize its huge economic potential until late 1978 under Deng Xiaoping.
The United States was alone in enjoying explosive economic growth from 1945 until about 1973. That wasn't because Americans were smarter or more exceptional than anyone else, it was because everyone else was crippled by the hangover of the war. When that hangover ended, the U.S economy began to unravel with remarkable speed.
All of it is now unaffordable and there's no better time to address it than the present. In retrospect, this should have been done at the end of the Cold War. Instead, Washington chose been in a state of perpetual war since 1989.
More importantly, the United States might not have a choice in the matter. China is thought to be entering an economic slowdown and, if it is, they might no longer be so generous in underwriting American frivolity. When your banker goes broke, the federal government bails him out. But when America's banker has significant issues, no bailout is possible.
The Chinese also aren't stupid. They built their prosperity by sending cheap shit to fat Americans with money to burn. But they knew that wasn't going to last forever so, over the last decade or so, Beijing's major project has been building a domestic consumer base. Regardless of what happens with the Chinese economy in the short-term, it is going to be less and less dependant on American consumers in the medium and long-term. Moreover, as consumer demand in China increases, so too will the cost of importing those goods to the United States.
To paraphrase Bill Clinton, "The era of buying cheap shit with no money is over." No matter what happens, the emerging industrial economies seem to have determined that their primary responsibility is to increase the standard of living of their own people, which is going to make being an American considerably more expensive in the long term.
This is a once in a lifetime opportunity for Americans to fundamentally rethink the role of government - in all of it's aspects - in their lives and the economy generally. The tragedy is that neither major party wants to talk about it in a serious or even halfway honest way. Democrats and Republicans alike are living in a fantasy world where it's going to 1955 forever.
The even greater tragedy is that most Americans want to believe this nonsense, ignoring the laws of both history and math, and shunning in the most forceful way the last best chance they have to save themselves.
Image lovingly stolen from Jai Krishna Ponnappan
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