Tuesday, January 01, 2013

The Fiscal Cliff Shows What the US is Good At - Avoiding Real Issues

Whatever happens in the House of Representatives, Congress and the White House have just made something explicit and powerfully clear: the United States has no leadership.

The “solution” which 89 Senators supported earlier today is no solution at all. Hailing it as a “victory”, as one commentator has said, would be like congratulating an arsonists for temporarily dampening “a fire he himself had created”. The deal pushes the problem down the road and does not deal with the core challenges which the US faces – the lack of demand and high unemployment. All it does it make modest adjustments to taxes and does not at all tackle the lack of competitiveness and growth evident in the US economy.

Why is this? There are several reasons, but the key is the fact that the republican party has lost the plot. They can no longer speak with any authority about the economy, since their prime agenda is totally clear: (a) support the richest people at all costs since, they appear to believe with the fervor of a cult, it’s the rich people that create growth; (b) cut the “undeserving” out of the economy by reducing their entitlements; (c) reduce social spending at all costs, no matter what the impact is on the most vulnerable; and (d) do not raise taxes. All this is based on two unproven economic ideas: trickle-down economics, which has been shown to be a crock, and a belief in the eventual return of the confidence fairy.

They are focused on government debt, despite the demonstrable fact that the two largest components of the debt are spending on defence (mainly due to wars in Iraq and Afghanistan, which the Republicans started) and the decline in revenues due to the lack of demand and unemployment. Some estimates put the structural debt figures at around just 2% of debt. They don’t focus on revenues, since new tax levels will affect their primary support network.

On the democratic side, they are also unfocused. They do not understand what they now need to do to grow the economy and stimulate demand. In fact, they are running in response to the republican agenda and have no clear agenda of their own.

Which is where the issue of leadership comes in. President Obama is not a leader we can admire. He is a good speaker, but leadership and rhetoric are two different things. Leaders show courage, determination, clarity and insight and he doesn’t exactly exude these qualities. [For the record, Mitt Romney wasn’t event on the leader board in terms of politics – “binders full of women”, “why don’t aeroplan windows open?” and “46% of Americans are…”. Don’t get me started on Paul Ryan!].

So what they agreed on is to increase taxes for all Americans and to hit those earning $450,000 or more harder than was originally planned. They then agreed not to deal with the cliff at all, but to make it into a Mountain which they have between now and March to climb. Worse, the deal makes the debt bigger not smaller.

Not a deal, not a compromise but a shambles. No leadership emerged anywhere in the house, senate or white house and non will be found between now and March.

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