There is more to the fiscal cliff that meet the naked eye.
Wise people—Borosage, Krugman, Stiglitz–some of them economists, see neither the fiscal deficit nor the U.S. debt as the key problems, but the lack of growth. They point to the Clinton years, and how through growth the Debt/GDP ratio went from a half to a third. It alone is important, but then there is another consideration. Some Americans are really suffering out there. “Sixteen percent” comes up very often–people and families below the poverty line–not knowing for sure where food will come from the next day, and not having medical insurance. Macroeconomics is blind to basic human needs. Yet there may be solutions hidden in them.
After the Clinton years came somebody else; increasing expenditure with enormously costly wars making it all even worse, and, in addition, lowering the revenue by reducing taxes on the super-rich. That a fiscal deficit would rear its ugly head, fed by such policies year after year, was a foretold conclusion. Democracy protects the president with a golden parachute, similar to that enjoyed by the CEO of a bankrupt company. Rightly so—he was elected, then re-elected. U.S. voters, you asked for it, you got it.
Overdue, the Congressional votes came on a compromise on ten fiscal cliff factors. The market reacted “positively” if that is the right word when the finance economy makes a Dow Jones Industrial leap upwards while the real economy is stagnant–increasing the gap that feeds future crashes.
It was a lazy compromise, meaning little new beyond juggling of the old. Major problems like Medicare payments (the U.S. health services) at 17 percent of the GDP produce less health than the typical EU at 8 percent of the GDP. And unemployment insurance postponed, not solved, rather like the debt ceiling. The new Congress inherits ever more intractable and pressing problems. That the fiscal cliff discourse is much too narrow is obvious. Hence, let us bring in the suffering of the people, the missing growth, and the debt burden.
There is no big national project anywhere like theTennessee Valley Authority; only the old stuff, nothing inspiring that points in new directions. How about a Municipal Uplift Authority as a major federal program? Beyond TVA, less concentrated geographically, more inspiring and dynamic! Hovering over the U.S. municipal map, identifying the municipalities with the highest levels of misery–people below the poverty line. Lift them up!
Cutting some expenditure and increasing taxes on the rich is indispensable, but limited and limiting. A huge imaginative program for the 16 percent to lift themselves up by their own bootstraps, with credits for small companies and cooperatives, designed to produce food and water, clothing and housing, health and education–all at affordable prices. It might do miracles. A carefully monitored MUA should be self-sustaining, and after the credits have been paid, generate U.S. domestic demand for considerable economic growth. Sixteen percent is a major proportion. America needs an approach more realistic to get the economic wheels turning than hoping to become the major world hydro-carbon exporter by 2030. But by then hydro-carbons may have been phased out. Better turn inward, and face the fact: the U.S. and Western world trade dominance is gone–outcompeted. There are also other approaches which in no way exclude each other, nor do they exclude the fiscal cliff avoidance compromise.
The U.S. debt is increasing. The world is flushing with U.S. dollars. States and corporations buy U.S. bonds at low interest–parking dollars for some limited time to avoid the costs of buying other currencies, trusting to be serviced by freshly-printed dollars. But that cannot last forever, given the many schemes for regional and world currencies based on a mix, not on any single currency.
With a (flexible) U.S. debt ceiling of $16.3 trillion the major creditor, China, has problems. Could the two agree on something in return for some debt forgiveness? Like the reduction of a major U.S. federal expenditure, the one trillion dollar military spending? A creditor is entitled to look at the debtor’s budgets to identity cuts; the debtor is entitled to say, “That one has to do with you (and Russia),” and the creditor to reply, “If so, let us talk; our economy is still smaller than yours, to match you militarily is more of a burden on us; how about bilateral, balanced, and controlled disarmament, and we could throw some debt relief into the bargain?” China might demand no encircling of China militarily, nor any Trans-Pacific Partnership, bloc excluding China economically. Who will benefit? Obviously both, relieved of military waste, and of a sizable proportion of the debt, leading them to cooperate rather than compete in the global arena.
We sense three possible losers: EU, Russia and Japan-Australia. But the United States and China together matter more. They might even engage in imaginative joint projects for poverty alleviation elsewhere. Lift up those at the bottom, and create customers.
The two policies, lifting up municipalities and tying debt relief to disarmament, are both rational. But in the way of rationality stands the arithmetic of Congressional voting in Washington. Some other input is needed if the legislative power has nothing more to offer. The onus is on the executive power. Could there be a Franklin Delano Roosevelt we have not seen, carrying Tennessee Valley Authority–size policies, hiding in Obama’s second incantation? If not, poor USA; four more years of the same, and continuing downhill.
In the swamp of problems there are bubbles waiting to burst: finance versus real economy, printed money versus real value, debt service versus people service. With sounds of a sucking quagmire a little further on.…