3 Things You Have to Know About the Bogus 'Fiscal Cliff'
Continued from previous page
Don’t even think of the end of the Bush tax credits as a crash. Or a fall off a cliff. Or anything bad at all. Think of it as letting go of a burden that has distorted everything it touched. Once we are released, we can float quickly, but gently, upward, returning to the (relatively) glorious economic conditions of the Clinton years.
Let’s look at the Ford Taurus, the cut in social security taxes.
There were two ideas behind the cut.
One is the weird semi-mystical belief among economists, including the economists who advised Obama, that tax cuts create growth. It is based on the idea that the market economy is the “real” economy. All economic good – growth, jobs, wealth – is presumed to be produced by that “real” economy. In this vision, taxes take money out of the “real” economy. That money then disappears. Therefore the whole economy is smaller. So it is sad and it grows more slowly.
However, according to the hymns sung in the church of economic orthodoxy, if you cut taxes, you put more money in the hands of consumers, they spend, they spend wisely (their decisions are necessarily smarter than any damn bureaucrats’ up in Washington). Since somebody must be making the goods and services they purchase, the result is growth and increased employment.
What if the government spends the tax money on roads and research on alternative energies? On cops, teachers and bridge inspectors? Those are very much part of our economic reality. That creates jobs.
What if the consumers spend their tax rebates paying off their credit card interest, on Chinese goods, and recreational Oxycontin? Those are all quite likely choices.
As an economic stimulus, the Social Security cuts are probably, sort of, moderately all right. Though they are not nearly as good as direct spending on building, fixing and maintaining infrastructure would have been, spending that largely stayed in America, created jobs that paid better than retail, and represented an investment.
Presumably the other reason for the Obama tax cuts was strictly political. Along the lines of, "Hey, people like tax cuts, so I’ll give them tax cuts. Bush’s tax cuts went to rich people, I’ll give mine to middle-income people. See, I do tax cuts, too, but mine are better."
Though it didn’t really work for Obama. He never sold his tax cuts with that Republican verve.
It’s still their brand. Not his.
The bad part about Obama’s tax cuts is political. They weaken Social Security. For the most part, people who receive Social Security invested in it. Just as much as people who invest in 401(k)s, SEPPs, IRAs, or who get pensions. Let me put it this way, "Goddamn it, I paid in my whole life. From jobs I worked at. From things I made. It’s no friggin’ entitlement, I earned it. Just like my Medicare. They are earned benefits."
Until Obama, the system had been sacrosanct. If contributions are cut, money to replace it must come from somewhere other revenue. That begins to transform Social Security into an actual entitlement program, which is bad because it diminished Social Security’s almost unique moral standing.
So, if the Taurus goes over the edge, well, what the hell, it was a rental anyway. Time to get back to our real car, the one that we own.
Letting the Escalade crash is actually a good thing for the economy.
It’s the pick-up truck, with the propane canisters, that’s the one that people are right to get hysterical about. Spending cuts will hurt the economy.