Fear can pave the way to avoid the “financial cliff”

I haven’t blogged much lately, in fact, very little since the November 6 elections. I needed a break, and I hope you haven’t missed me too much. In any case, I am back with the goal of writing more about issues beyond politics and the political quagmire here in Washington.

My blog posting yesterday about the death of jazz legend, Dave Brubeck, was part of that effort, and I hope to continue so. But, first, I must write about the “financial cliff” – the financial Armageddon that looms at the end of the year if the White House and Congress cannot agree on a new approach on how to solve America’s serious financial problems and growing national debt.

It’s already a month since President Barack Obama’s convincing victory over the Republican challenger Mitt Romney. The Republicans are still trying to come to terms with what actually happened and why. Meanwhile, all eyes in Washington have been focused on the “fiscal cliff,” by some called the “austerity crisis,” a matter of seldom seen proportions and seldom seen consequences if not dealt with before the New Year. If the White House and Congress cannot come to an agreement, a series of automatic events – all extremely negative — will unfold, both on taxes and on budget cuts.

The financial cliff came about because of previous failures in Washington after the big debt ceiling crisis of 2011 to lower the budget deficit and the national debt. The parties decided to postpone the tough decisions – kick the can down the road, as it is so often put. So, no one imposed the cliff on Washington – the politicians did it this to themselves, and they will go down together if there is no deal before December 31, although polls show that most voters will blame the Republicans.

If there is no deal, all American will see their taxes go up next year — by an average of 3 446 dollars. In addition, 200 billion dollars in tough spending cuts will take effect. A non-deal will cause the U.S. economy to shrink and unemployment to turn upwards, to over 9 percent. That would be not only a shame, it would be catastrophic for an economy that now shows encouraging signs of steady improvement, including steadily lower unemployment figures – to now 7.7 percent, the lowest since December 2008, just before Obama entered the White House.

Indeed, it’s a frightening scenario, and, for many, it seems incomprehensible that the White House and Congress will let this happen. Too much is at stake, both politically for the parties, and economically for the whole country. No one wants to be blamed for such a collapse and common sense says that there will be a deal. But time is rapidly running out in this “magic moment,” for a deal, as a leading Democrat put it recently. There is no better time than right now to make a deal.

So far, the Republicans have resisted the “balanced approach” — with tax rate hikes for the richest two percent of the population, those with incomes of over 250,000 dollars per year, combined with a series of spending cuts – an approach on which Obama campaigned and won the election. Stubbornly, the Republicans have so far said no to all tax rate hikes, but without them, Obama has repeatedly and firmly stated, there will be no deal.

During the election campaign, the majority of voters seemed to think that Obama’s “balanced approach” was sensible, and those sentiments linger. The President’s approval ratings are up, over 50 percent, and he is now clearly in the driver’s seat.

Maybe, in the end, plain fear of a failure and the subsequent wrath of the voters, who want a deal and want Washington to come together, will drive the parties together to reach an agreement. There have been cracks in the unified resistance among the Republicans in Congress to higher taxes. No doubt they see the writing on the wall.

If the Republicans don’t meet Obama partway, they “would contribute to a recession that would discredit them for a decade,” David Brooks warns in the New York Times today.

Fear… fine! Who cares? The main thing is that there is a deal before midnight strikes on December 31.

“Solidarity” behind the success of the Nordic model

Here is a good read about the economies in Sweden and the countries in northern Europe, where, “befuddling Americans, economic growth is robust, and unemployment is lower than in most other European countries.”

So writes Stockholm-based businessman Daniel Sachs under the headline “The Nordic Model’s Economic Appeal” in the latest issue of “The Globalist.”

“The Nordic model leads to one great benefit: it promotes adaptability and openness to change…Openness to change is a core aspect of the competitiveness of the Nordic economies.”

Sachs, who was educated in Sweden and at the Wharton School at the University of Pennsylvania, writes that he believes in “incentives” but then uses a word seldom, if ever, used in the U.S. debate — “solidarity.”

“What the Nordic experience shows is that ‘individual’ incentives can be soundly balanced by solidarity on a ‘societal’ level. Solidarity makes good economic sense. Solidarity — that is, risk-sharing — is a key ingredient in being open to change…These aspects of the Nordic model — the relationship between state and individual, generous social protection, freedom of the individual and high levels of trust — all help foster risk-taking and openness to change.”

In turn, he ends, this has led to high levels of trust, fairness and transparency, low transaction costs and low corruption – all reasons why he as a businessman likes the Nordic model.

Anything to learn here?

Spending too much, taxing too little

The discussions continue, new proposals are floated, old ones are revived, but there is still no agreement while the deadline, August 2, is rapidly approaching when the U.S. can no longer pay its expenses without the debt ceiling being raised.

Lots of talk about a balanced solution, about spending and cuts and taxes. What is then the state of the U.S. economy? Has the U.S. spent too much? Are taxes too low? These are questions that Factcheck.org. tries to answer in a recent study.

Here are some excerpts:

 U.S. federal spending is the highest since World War II, while incomes are the lowest in more than 60 years. In figures this means that spending represents 24 percent of GDP, while the federal revenues dropped to 15 percent of GDP.

 This has resulted in a budget deficit of 10 percent of GDP, the largest deficit since 1945.

 Tax cuts and America’s wars in Iraq and Afghanistan are the reasons behind the large deficit.

 Federal income tax receipts have dropped sharply since the tax cuts under George W. Bush, from 10 percent of GDP to 6 percent today.

 Today, the U.S. borrows 36 cents of every dollar spent.

 Of federal spending, 20 percent goes to Social Security, 13 percent to Medicare, and 8 percent to Medicaid, while 20 percent goes to defense. Foreign aid accounts for only 0.9 percent of total federal spending.

All this points to a serious imbalance in the U.S. economy. How, if at all, can Washington solve this problem? That is today’s big question.

A lonely leftist in today’s debate

America is becoming increasingly unequal. The rich are becoming richer and pay less in taxes, the middle class and the poor are finding life increasingly more difficult.

“America the Unequal,” wrote Michael Tomasky recently on The Daily Beast.

Tomasky, however, is somewhat of a lonely voice in today’s American political and economic debate, dominated by the Republicans and its tea party-wing. The Republican Party has so far stubbornly rejected any and all talk of revenue enhancement, although Americans in general seem to understand that an agreement on a budget and the country’s finances must include tax increases, according to all opinion polls.

At a time when the conservative voices dominate the political and economic debate, it may be appropriate to strike a blow for one of the few true leftist voices in the U.S. Congress, the independent senator from Vermont, Bernie Sanders. He calls himself a democratic socialist. Born in Brooklyn, New York, he moved as an adult to Vermont and was elected and re-elected mayor of Burlington and served 16 years in the House of Representatives in Washington before elected senator in 2006.

Sanders gave a great speech in the Senate the other day, called “Dear Mr. President.” It is well worth listening to, for what he said is oh so rare in today’s debate.