The Fiscal Cliff is Your Fault

. . . and mine as well.  Why? Because we have not made up our minds about the overall direction of government.  We have elected a divided government.  The President won re-election with a small majority, not a mandate, even though the radical change he desires would require a mandate.  In the meantime, the House continues under Republican control, with a healthy majority.  We the people have spoken, and said, we're not sure what we want.

Further, the political coalitions that form the basis of the two parties obscure the real desires of the electorate.  For example, the Republican party gets outsized support from agricultural communities that are very socially conservative.  However, they are also huge net recipients of government aid in the form of crop insurance or price supports.  So farm state Republicans have an incentive to trade pork for farmers rather than reducing spending.  On the Democratic side, Hispanics and Blacks voted decisively against gay marriage in California in 2008; even while they elected Democrats who have worked to undermine Proposition 8.  Silicon valley entrepreneurs gave heavily to Obama in 2008, despite the predictable result that stifling regulation would stunt new business development in this country.

It will take a crisis to cause the nation to coalesce around a path forward.  In the meantime, the problem gets worse.  The debt clock on the right side of my blog is not going to go backwards any time soon.  If it reverses at any time this decade, I will be shocked.

The result of the fiscal cliff talks are fairly predictable as a result.  There will be tax rate hikes, because Obama is ideologically wedded to the idea and he has an advantage in the negotiations.  But the hikes, whether on $250,000+ or $400,000+, will not produce the revenue predicted.  Even if the predicted revenue did materialize; it wouldn't make much difference in the long term deficit.  The official estimate is that the rise would produce $950 billion in revenue over ten years.  Sounds like a lot, but when put on an annual basis, it doesn't even cover one month's worth of deficit spending.

Meanwhile, whatever spending cuts are proposed will be back loaded; which means they will never be put into effect.  The only sensible outcome appears to be that the useless payroll tax cut will expire.  Useless, because the cut was always known to be temporary, and therefor blew a hole in the social security accounting without actually adding any jobs; it's purported purpose.  Businesses aren't going to hire because of a temporary reduction in labor costs, and they didn't.

Regardless of the exact outcome of a deal, or a temporary measure that gives more time to negotiate, we can expect no meaningful progress on debt reduction.  With debts mounting throughout the Western world, there are no reserves to handle the next crisis.

Programming note: I intend to post regularly again.  If you have been visiting, looking for new posts, I am sorry to have had none.  My personal circumstances left me with little time and energy for blogging, but I feel refreshed from some time off over Christmas and ready to hit it again.