3
'Cliff' fix should include triggers
President Barack Obama speaking during a press conference Nov. 14, 2012 in the East Room of the White House in Washington, D.C. Commentator Robert Reich says we should hold tax increases and spending cuts until economy improves.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
The president and Congress need to be careful on how they craft any deal to back us away from the fiscal cliff.
We’ve got two big economic challenges ahead: getting the economy back on track, and getting the budget deficit under control.
The problem is, the two require opposite strategies. We get the economy back on track by boosting demand through low taxes and continued government spending. We get the budget deficit under control by raising taxes and reducing government spending.
But if we do too much deficit reduction too soon, we're in trouble. That's why the fiscal cliff is dangerous. The Congressional Budget Office and most independent economists say it will pull so much demand out of the economy that it'll push us back into recession. That’s the austerity trap of low growth, high unemployment, and falling government revenues Europe finds itself in. We don’t want to go there.
Although the U.S. economy is picking up and unemployment trending downward, we’re still not out of the woods. So the government has to continue to spend, and the vast middle class has to keep spending as well, unimpeded by any tax increase.
But waiting too long to reduce the deficit will also harm the economy -- spooking creditors and causing interest rates to rise.
It all boils down to timing and sequencing: first, we get the economy back on track, and then we tackle the budget deficit.
This is why any “grand bargain” to avert the fiscal cliff should contain a starting trigger that begins serious spending cuts and tax increases only when the economy is strong enough. I’d make that trigger two consecutive quarters of 6 percent unemployment and 3 percent economic growth.
To make sure this doesn’t become a means of avoiding deficit reduction altogether, that trigger should be built right into any “grand bargain” -- irrevocable unless two-thirds of the House and Senate agree, and the president signs on.
The trigger would reassure creditors we're serious about getting our fiscal house in order. And it would allow us to achieve our two goals in the right sequence -- getting the economy back on track, and then getting the budget deficit under control. It’s sensible and doable. But will Congress and the president do it?
I'm sure lawyers and historians around the country cringed when they heard Reich suggest that his grand bargain would be irrevocable without 2/3s of the House and Senate and the signature of the President. A current Congress cannot bind a future Congress by normal legislative process. I'd like to think Reich knows this, since I agree with his position on spending and our debt generally, and his suggestion of a 2/3s requirement from the Congresses for revocation of the bargain suggests he's thinking Constitutional amendment. Nonetheless, a Constitutional amendment requires approval from 3/4s of the States' legislatures as well as the 2/3s vote in th Congresses (no signature from the President required). The prospects for such a Constitutional amendment hardly seem "doable," and because the piece ignores political and Constitutional reality, it is misleading, however sensible its ideas economically.
The real debate is the monetary system-commercial banking which caused the Great Recession not the fiscal system! We need money in circulation for consumers and owners. The creation and distribution of new money is the answer not how much we tax or spend. Deficit spending is a temporary substitute look at Japan.
The answers are at www.monetary.org and www.cpe.us.com in the Monetary Reform Section.
Center for Progressive Economics
Former Secretary of Labor and University of California, Berkeley, Professor Robert Reich ONCE AGAIN puts the emphasis on JOB CREATION and completely ignores OWNERSHIP CREATION in the face of the exponential shift in the technologies of production whereby productive capital embodied in human-intelligent machines, superautomation, robotics, digital computerized operations, etc. is destroying or degrading jobs to minimum pay scale.
The solution is to focus on OWNERSHIP CREATION to broaden private, individual ownership in new FUTURE productive capacity investment in the private sector by business corporations and provide the financial mechanisms for ordinary Americans, without assets to pledge as security, to benefit from bank loans that get paid back out of the future earnings of the investments. The long-term result will be to balance production and consumption and provide a "second" or "primary" source of income to EVERY American, which will in turn continue to create demand for the products and services that translate to affluent livelihoods.
Reich said: "Let's get real. Businesses and the rich aren't job creators. The middle class creates jobs through their spending. And if corporations and the wealthy don't pay a lot more in taxes, the rest of us will have to -- which means the middle class will be even more pinched than it already is. Or else we'll lose investments in education and infrastructure, and safety nets like Medicare and unemployment insurance and Social Security we rely on, which will pinch us in another way. All this would mean less middle-class spending, and therefore fewer jobs."
