Fiscal Cliff "negotiation"

[RuralEngineer]

I was curious as to others thoughts on the Republican negotiation tactics over the fiscal cliff. Given that the Republicans have absolutely no method of preventing tax hikes that doesn't throw the middle class under the bus, I'm really shocked that they continue to spend political capital in a fight they can't win.

I'd like to see them agree to the tax hikes, since they'll happen anyway, and use that to try and leverage deep entitlement reform.

If the Republicans do anything other than completely roll over for Obama though, I fully expect us to go over the cliff. A majority will blame the Republicans, Obama gets his tax hikes, lower defense spending and is no longer under any pressure to even look at entitlements.

[Pointedstick]

I completely agree on all counts. I think they should pass the bill to extend all the tax cuts both parties agree on and then work on the rest. At least then they'll get something. They have no leverage here, and the default non-action hurts them.

On the other hand, if we go over the cliff, a lot of Republicans are going to lose their jobs in the next election cycle, and that particular breed of intransigent Republicans that have evolved will start to die out.

[RuralEngineer]

I noticed they kicked the more "stick in the mud" Republicans off the House budget committee. By they I mean Repub leaders. Maybe there's hope, but the rank incompetence is pervasive, so I doubt it.

[MediumTex]

I completely agree on all counts. I think they should pass the bill to extend all the tax cuts both parties agree on and then work on the rest. At least then they'll get something. They have no leverage here, and the default non-action hurts them.

On the other hand, if we go over the cliff, a lot of Republicans are going to lose their jobs in the next election cycle, and that particular breed of intransigent Republicans that have evolved will start to die out.

The House Republicans from the mid-90s were similarly misguided.  I think that they let their hatred of Clinton blind them in the same way that hatred of Obama is blinding some of these Republican politicians today.

There is a time to put the righteous indignation act aside and just make the best deal that you can make and move on.

The REALLY stupid thing was structuring the 2001 tax cuts with a sunset provision.  It seemed dumb at the time and it seems dumber today.  That's just legislative incompetence IMHO.  It's the legislative equivalent of intentionally designing a faulty product that you know will one day hurt people.

[melveyr]

I think we will go over the cliff because Republicans feel that they cannot raise taxes on the wealthy out of principle. After we are over the cliff, the middle class tax cuts will go through easily. Everyone (in Washington at least) wins because they can blame the other side for going over the cliff and take credit for the subsequent tax cuts.

Although, isn't weird how frightened we all are of the combination of tax hikes and spending cuts but our politicians respond by bickering over how they are going to raise taxes and cut spending?  Pretty ridiculous.

[MediumTex]

Although, isn't weird how frightened we all are of the combination of tax hikes and spending cuts but our politicians respond by bickering over how they are going to raise taxes and cut spending?  Pretty ridiculous.

Especially when the thing that they are bickering over is the conceptual equivalent of unicorn droppings.

From listening to the media coverage, you would never know that the unit of value that our leaders are so worked up about is entirely abstract and completely within the control of the people who seem so helpless in the face of this impending disaster.

Listening to these people talk is like watching a mime have a nervous breakdown.  It is utterly ridiculous.

[melveyr]

Listening to these people talk is like watching a mime have a nervous breakdown.  It is utterly ridiculous.

I guess if the mime thinks he is actually trapped in the box, what difference does it make? He might as well be actually trapped.

I really like that mime analogy. Honestly, most of the time the performance has tremendous value because it prevents the public from clamoring for handouts because they think the mime is trapped. Paul Samuelson talks about something very similar in this video:
https://www.youtube.com/watch?v=G67ha8iVmQ4

[RuralEngineer]

Even if you ignore the fiat money aspect, the value of what they're arguing about is absolutely minuscule relative to the deficit. It's even insignificant relative to the tax increases that go into effect due to political intransigence.

[MediumTex]

Listening to these people talk is like watching a mime have a nervous breakdown.  It is utterly ridiculous.

I guess if the mime thinks he is actually trapped in the box, what difference does it make? He might as well be actually trapped.

Yes.

It reminds me of that Star Trek episode where the society had eliminated actual war by having random people report to a death chamber after each simulated battle.  They were very proud of this innovation.

[melveyr]

Even if you ignore the fiat money aspect, the value of what they're arguing about is absolutely minuscule relative to the deficit. It's even insignificant relative to the tax increases that go into effect due to political intransigence.

Agreed. I think the worst part about the situation is that it creates a grand theater for our politicians to display how incompetent and dysfunctional they are.

[Xan]

It reminds me of that Star Trek episode where the society had eliminated actual war by having random people report to a death chamber after each simulated battle.  They were very proud of this innovation.

"A Taste of Armageddon".  That was a good one.

[Benko]

I'd like to see them agree to the tax hikes, since they'll happen anyway, and use that to try and leverage deep entitlement reform.

Fair enough, but have democrats ever agreed to actual decreases in spending as opposed to accounting gimmicks and fantasy decreases in spending which never materialize? 

If we go over the cliff (and I suspect it is very possible) the economic result will not be good and while the republicans will take the blame, it cannot help but reflect on der leader as well since he will have to live with the consequences of a bad economy.

[MachineGhost]

I've not been paying any attention because of how stupid it all is given the amount involved is a zit on the ass of the deficit.



But, is any of the proposed spending decreases actually real net decreases or just a reduction in projected spending increases?

[Xan]

The REALLY stupid thing was structuring the 2001 tax cuts with a sunset provision.  It seemed dumb at the time and it seems dumber today.  That's just legislative incompetence IMHO.  It's the legislative equivalent of intentionally designing a faulty product that you know will one day hurt people.

I'm of the belief that all laws should automatically sunset in some period of time, maybe 10 years, or maybe as often as the legislature meets.  A major problem is that the legislators need to be seen to be doing something, and usually that ends up being harebrained schemes that are terrible for everybody.  If the reset button were being hit frequently, then they could all claim to be achieving something, while they're really just running in place, which would be great for freedom.

Sunsetting failed here because of what things are about to fall back to.  If the current tax law were to sunset with absolutely nothing to replace it, you'd better believe there'd be a deal worked out, and everybody would be able to claim they got something.  Effectively, that's what may happen after we go over the cliff...  After we're staring down the barrel of a huge AMT bill due 4/1, and penalties for not having paid it by 1/15...

[MediumTex]

The REALLY stupid thing was structuring the 2001 tax cuts with a sunset provision.  It seemed dumb at the time and it seems dumber today.  That's just legislative incompetence IMHO.  It's the legislative equivalent of intentionally designing a faulty product that you know will one day hurt people.

I'm of the belief that all laws should automatically sunset in some period of time, maybe 10 years, or maybe as often as the legislature meets.  A major problem is that the legislators need to be seen to be doing something, and usually that ends up being harebrained schemes that are terrible for everybody.  If the reset button were being hit frequently, then they could all claim to be achieving something, while they're really just running in place, which would be great for freedom.

Sunsetting failed here because of what things are about to fall back to.  If the current tax law were to sunset with absolutely nothing to replace it, you'd better believe there'd be a deal worked out, and everybody would be able to claim they got something.  Effectively, that's what may happen after we go over the cliff...  After we're staring down the barrel of a huge AMT bill due 4/1, and penalties for not having paid it by 1/15...

That would be really cool if all taxes had 10 year sunset provisions where they simply ended if not renewed.  In other words, if not renewed a 25% tax rate would go from 25% to 0%.

[dragoncar]

I've not been paying any attention because of how stupid it all is given the amount involved is a zit on the ass of the deficit.



But, is any of the proposed spending decreases actually real net decreases or just a reduction in projected spending increases?

That's cool, I can make up stuff too.  Like:

This is the size of unfunded liabilities over some time period I pulled out of my butt: 1000 gazillion dollars. 
This is the size of projected tax revenue after we raise taxes multiple times and inflate out monetary base: 2000 gazillion dollars.

So basically, we're in the black.

[moda0306]

MG,

I thought we agreed that the term and ideas around "unfunded liabilities" were a bit of a cop-out and didn't represent reality.

The "fund" of our liabilities lies in all the productive minds and hands in this country.... including all the ones looking for work right now that don't have it... not some trust fund with confetti in it.

Maybe I misinterpreted... can you clarify your position?

[melveyr]

Yeah the real deficit when it comes to entitlements is how many doctors, nurses, and hospitals we will need to fulfill our promises to seniors versus how many doctors, nurses, and hospitals we will actually have.

The money is just something we use to orchestrate the real resources, the money is not the scarce resource at stake.

We could have a gazillion dollars stuffed into an account to make it "solvent" but it won't matter if the workforce isn't ready or willing to take care of seniors.

PAUL RYAN: “Do you believe that personal retirement accounts can help us achieve solvency for the system and make those future retiree benefits more secure?”?

ALAN GREENSPAN: “Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”?

It's really all about a transfer of real wealth from workers to retired seniors. There is no question that we can do that with our system, the question is do we want to? That is a political choice, not an operational constraint.

Worrying about "saving" up enough confetti money in some federal government spreadsheet I think is very harmful for this dynamic because the austerity creates stagnation in the labor market, meaning that the workers who will need to be educated, sharp, and experienced are sitting stagnant in their parents basement. We are "saving" up the tool with no scarcity (money) while simultaneously wasting the resource with very real scarcity (human capital, the future doctors and nurses). It is fascinatingly stupid.

If we really wanted to ensure entitlements promised were met (I am so young that I frankly don't care), the focus should be on increasing the supply of health services so that there is enough to go around.

[RuralEngineer]

I'm not aware of anyone arguing that the government can't confiscate enough wealth and transfer it to seniors either through inflation or direct tax increases. What we mean by "unfunded liabilities" is that the tax mechanisms used to pay for these programs now won't work in the future without adjustment. The SS tax is a fixed % of income, for example. This doesn't account for slow wage growth and the large demographic shift.

Whether my generation is going to accept massive tax increases or redistribution by inflation to pay for entitlements is a separate issue.

[moda0306]

melveyr,

Thanks for great input, including a great quote from a guy I've been increasingly disgusted with over the years.  Tip of the cap to ol' Greeny.

[Pointedstick]

I'm not aware of anyone arguing that the government can't confiscate enough wealth and transfer it to seniors either through inflation or direct tax increases. What we mean by "unfunded liabilities" is that the tax mechanisms used to pay for these programs now won't work in the future without adjustment. The SS tax is a fixed % of income, for example. This doesn't account for slow wage growth and the large demographic shift.

Whether my generation is going to accept massive tax increases or redistribution by inflation to pay for entitlements is a separate issue.

This rings true to me. I certainly expect to fight like hell against it.

[melveyr]

I'm not aware of anyone arguing that the government can't confiscate enough wealth and transfer it to seniors either through inflation or direct tax increases. What we mean by "unfunded liabilities" is that the tax mechanisms used to pay for these programs now won't work in the future without adjustment. The SS tax is a fixed % of income, for example. This doesn't account for slow wage growth and the large demographic shift.

Whether my generation is going to accept massive tax increases or redistribution by inflation to pay for entitlements is a separate issue.

Yes, but the tax system can change entirely within a year. They could "fund" this system overnight if the political will was there. This is all just entries in spreadsheets.

What they cannot do is create health services supply overnight. The real goods and services that need to be created are something that would have to be addressed today in order to meet future demands. This is the real gap.

If you put a gazillion dollars in the account, and there was only one doctor 40 years from now. That doctor could charge a billion dollars an hour. Putting money into the account is such a minor detail compared with the real capacity constraints of the industry.

Again, I am not saying the government should focus on securing entitlements. But if they really wanted to I think they are approaching it from the entirely wrong direction.

[melveyr]

melveyr,

Thanks for great input, including a great quote from a guy I've been increasingly disgusted with over the years.  Tip of the cap to ol' Greeny.

Sometimes I love him. Sometimes I hate him. But he will always be ol' Greeny to me.

[flyingpylon]

Moda and Melveyr- I generally understand your arguments, but how do you go about your day in such an abstract state?  Do you not have wages, expenses, and savings that can't always adjust as quickly as economic conditions or inflation, etc.?  Do you not worry about things like tax rates or government spending and how decisions made by politicians may have a very real impact on your personal financial condition in the future?

While I agree that the vast majority of the "negotiating" is actually absurd theatrics, I can't get away from the fact that whatever these bozos decide is going to impact us all.  I'm also not sure that whether your generation (or mine) is going to accept tax increases or redistribution is a separate issue... it seems like that *is* the issue.

[melveyr]

Moda and Melveyr- I generally understand your arguments, but how do you go about your day in such an abstract state?  Do you not have wages, expenses, and savings that can't always adjust as quickly as economic conditions or inflation, etc.?  Do you not worry about things like tax rates or government spending and how decisions made by politicians may have a very real impact on your personal financial condition in the future?

I am concerned with all of those things, especially because I am a player in the capitalist game.

If I were playing football I would try and score as many points as I could, but I would not worry about the referee running out of points. I can simultaneously worry about my own limits in gaining points while recognizing the ultimately limitless nature about the source of points.

It really comes down to separating the microeconomics from the macroeconomics. I try my best to switch my mental frameworks depending on the problem at hand.

Finally, I worry tremendously about the impact that politicians have on the economy and my own life. I have a job lined up for when I graduate, but it is still scary entering this labor market and I really empathize with my peers who's futures are less certain. That is why I am so passionate about this stuff. Yes the abstract stuff is fun, but I only care about it because of the tragedy of unemployment.