The Fiscal Cliff Explained … Good for a laugh IMHO
A friend shared this photo with me recently on the topic of the “Fiscal Cliff.” The argument presented is pretty straightforward and simple to understand: Families can’t live beyond their means and so country’s shouldn’t either. Interesting analogies. And entertaining. But keep this in mind.
No country that prints its own currency has ever gone bankrupt.
Comparing households and national governments may make intuitive sense (it sounds right in our ‘gut’) but it is a “fallacy of composition” as economists (on the right or left) would say – a fool’s game in layman’s terms. These entities are not the same. Households can’t print their own money (though they can get in too deep on credit cards it’s not the same).
Sure, we have a tax deal that we got at the last possible minute to start the New Year — an historic one at that given the fact that it resulted in a tax increase which a number of Republican Senators and Congressmen voted for.
But the next “fiscal cliff” will be upon us as soon as February when there will be another fight for raising the borrowing limit needed for the US Treasury to keep us from reneging on debts owed.
Not raising the debt ceiling to pay for previously incurred debts does nothing but ruin the government’s credit rating which ultimately raises the cost of borrowing for businesses.
Yes, there may be overspending in areas that need to be brought under control (the military is certainly one) but not raising the debt ceiling puts the government at risk and is in effect counter to the Constitution which requires payment of debts.
Social Security is not a major contributor to the debt despite the focus by the media. It is self-financed and can survive without increasing retirement age or cutting benefits or changing the CPI index used for calculating benefits by increasing the arbitrary ceiling on the amount of wages subject to taxes. For more on this, consider this from the American Prospect.
If we don’t want to raise the debt ceiling and pay for the 2 1/2 wars, an unfunded expansion of a prescription drug benefit and tax cuts started under a Republican Administration, does that mean that those policies are repudiated? I think not. The bill has come due and needs to be paid. The debts for these far outweigh anything incurred in other areas of the national budget.
Reneging on the debt ceiling authorization does nothing to change the fact that these bills are due. We need to suck it up as painful as that is. Pay for the past and have a sensible and balanced policy going forward.