Friday, December 21, 2012

The Fiscal Cliff and the Whole Context

These days we are swamped with TV and internet coverage of the fiscal cliff scheduled to occur on January 1st. What the cliff amounts to is a reduction in government deficit spending, which in itself is a good thing. But, since the deficit would still be astoundingly and disastrously large, the cliff isn’t as big a deal as one would wish. That the “cuts” are in fact just reductions in the rate of spending increases and not reductions in spending, it is clear that the whole thing is mostly a sham (e.g., see).

On the other hand, since the reduction in the deficit would be mostly tax hikes, the pain would fall on the productive population. In the context of the economy, it is spending that needs to be reduced. An increase in taxes would be an additional drag on the economy, increase the rate of the decline of our standard of living, and enhance the movement toward destruction of rights and the importance of the individual in our society. What happens with the fiscal cliff could hasten the slide toward a fate like Greece or Spain. We really don’t want that to happen. Of the options that Obama seems to accept, i.e., no deal or higher tax on high incomes levels and no spending cuts, I find it hard to choose. There is some indication that BO wants a limited increase in taxes and increases in spending, which could be worse.

But the fiscal cliff is just part of the problem: the hoopla over the “fiscal cliff” provides a smoke screen covering additional pending disasters for our economy, namely, the beginning of the implementing of ObamaCare taxes and regulations, and the coming tidal wave of Dodd-Frank and other anti-business regulations.

Quite possibly the impact of Dodd-Frank will dwarf the fiscal-cliff. It has already drastically restructured parts of the financial community. There are many regulations still to be issued from Dodd-Frank (many are already late) and they all are intended on reducing the range of options of a financial institution, which will lower its profitability, more tightly limit its decision making capability, and reduce its ability to fund American production.

ObamaCare has many elements (some still little known) that will be instituted in 2013 that will raise business costs, lower employment, and cause further problems with health insurance and medical costs. All of these together, including whatever nonsense ends up as the “solution” to the fiscal cliff, will mean slower growth, or possibly recession for the US economy (which won’t be good for the world economy either).

Think what that will mean for the federal deficit and budget.

We have seen many projections as to when the federal revenue will equal the sum of interest payments on debt, Social Security, and Medicare, in other words, severe problems with funding the government and retaining the appearance of the safety of government debt. If you look closely at each, I expect that you will see that the assumptions include some growth in the US economy and that there will be a significant number of people paying the Social Security and Medicare taxes. But, with four more years of BO and the total number of people employed remaining low (as opposed to actually producing; and as opposed to the unemployment figures that are meaningless), tax revenue, including FICA, is not going to grow while the interest on federal debt, even at today’s absurdly low levels, Social Security and Medicare demands will grow rapidly. The only way to pay for defense and the astounding number of programs the federal government supports, is to constantly grow the deficit. It is also possible that Obama will try to raise taxes, but that may be too obviously destructive for today’s population.

The federal deficit will be the tipping point, but the real cause of death for our economy is the restrictions on doing business and producing. The arguments about spending and deficits need to begin including emphatic emphasis on the disaster of regulation.

For us, the unwilling and resisting passengers on this train into the tunnel of death, it means that we need to arrange our thinking to prepare personally and philosophically. I will leave to you the personal preparations (I am thinking about a potential blog post on this topic.)

Philosophically, we need to emphatically tell anyone we can that the coming mess is not the result of capitalism or selfishness (maybe we can equate blaming the Jews in Germany after WW1 with blaming capitalists). That is in addition to the stuff we are already doing, e.g., focusing on helping ARI and other similar activities and aiming at the destructive educational system we have.

And now for a final comment that is going to be a theme for me:

Understanding the Objectivist philosophical method is vital to anyone concerned about his freedom, as well as his life in general, of course. Recently I have been getting my own intense reminder. I have been reading Understanding Objectivism and The DIM Hypothesis. I want to emphatically recommend these books. If you want to understand an individual’s mental functioning, UO is the book to read. It is also helpful in leading up to the other one. To better understand the trends and conflicts in our own situation here in the US, The DIM Hypothesis is absolutely necessary. It is very philosophical. But philosophy matters, and our conflicts today are philosophical. For your own sake, read them.