Seamanship Quotation

“In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination.”
— from Michael Oakeshott's
Political Education” (1951)

Thursday, November 8, 2012

The next American Melodrama: the “Fiscal Cliff”

American democracy didn’t die on Tuesday and hasn’t killed the American Dream. The world’s oldest federal democracy hasn’t reached its "use by" date.

As the worldly world outside waited, Americans devoted long hours, in greater numbers than before, to give a clear majority to a moderate President who didn’t hide his willingness to advance the causes of moderates in Washington. The people’s voices have made it more dangerous, not easier, for America’s politicians to be extreme, to slow things down, to play dice with their economy or world peace, or single out who’s a good American and who’s not.

Headliners abroad screamed that America “split in half.”

Is supporting (in the tens of millions) two viable national campaigns a provocation, an indulgence? Is there a better option out there? Would we wish on Americans the harmonious one-clique model practiced in China? Or the micro-party, coalition politics that leaves all the compromising to the backrooms, and makes it easy for Canadians and Europeans to vote for fanatics, as well as professional politicians?

Let’s go further and start being a little more hopeful as well about Washington’s ability to fix its problems and support economic growth. After all, the US is now the only superpower, the only giant mixed economy in the world, with one set of fiscal and monetary levers in one national government, lead by seasoned executives and legislators with fresh popular authority to attend to its problems.

The “fiscal cliff” is the term used to scare people into following the debate over how to align America’s spending and taxing levels in ways that will lift uncertainly about the future and, thereby, bolster sustainable recovery. Obviously, the subtly of it all cries out for alarming, simple language.

Nevertheless, the “fiscal cliff” isn’t a suicide pact. It’s the law of the land and, if implemented, would take a giant step toward closing the US structural deficit. (The thing Obama’s critics call the freeway to Greece.) It entails, unfortunately, too much on taxes and too much on spending, at once, at this time. Taking approximately $600 billion out of the economy, especially the piece that includes middle class tax increases, has orphaned the whole plan and made the likes of John Boehner welcome new ideas from Obama. Here’s what he said today to the New York Times:

“Instead of allowing the top rates to go up, which Republicans say would harm the economy, Mr. Boehner said Washington should end some deductions and loopholes to raise revenues.”

A hybrid of Obama’s income tax rate increase on incomes over $25,000 and Romney’s coy proposal to impose a $15,000 or, say, $25,000 cap, on popular tax deductions could help raise enough on the tax revenue side necessary to complement entitlement spending cuts.

It’s not likely, however, that Boehner could sell his Republican colleagues on any tax package that explicitly raises revenues, if Obama appears willing, yet again, to postpone the legislated New Year’s tax increases that make up about half of the “fiscal cliff.”

For the “fiscal cliff” to work as blackmail, it has to be reckoned with as something that could actually be done, if negotiations fail. Obama again must play the long game and risk causing hearts to race everywhere for the next couple of months.

Speaking to the recessionary threat of the “fiscal cliff” in today’s National Post, Canada’s Conservative Finance Minister Jim Flaherty inadvertently spelled out how it would work out: his "pragmatic" government would stimulate the Canadian economy. Republican conservatives along with Canadian conservatives would scramble to keep the North American economy growing.

They’d blame Obama for the crisis. The markets would prefer a quick return to those $trillion deficits that were making them rich and smug at the same time. The IMF and other forecasters would predict a recession that could only happen if Washington, for the first time in modern history, refused to do anything.

American politicians never fail to take short-term actions to fight recessions. The question with no clear answer now is: Can they still do hard things to protect America's future?

This looming "fiscal cliff" will be puffed up over the next weeks by low tax fanatics to excuse further delay on tax reformuntil it’s too close to the 2014 congressional elections to do anything. Yet, now is the safest time for Congress to compromise, and the best moment Obama will have to get them to be statesmen, just like in the movies. 

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