WASHINGTON, D.C., March 4, 2013 — The White House has begun to walk back its predictions of disaster for the sequester. Gene Sperling, President Obama’s top economic advisor, said on Sunday that the cuts won’t hurt much immediately, but they will hurt over the long run.
Sperling said on NBC’s “Meet the Press,” “Nobody ever suggested that this was going to have all its impact in the first few days. It is a slow grind.”
In its attempts to incite panic among voters and GOP lawmakers, the administration had indeed suggested immediate, disastrous impact. Obama had spoken of thousands of teachers, firefighters, air traffic controllers and TSA agents laid off immediately. The deployment of a Navy aircraft carrier, the Nimitz-class USS Harry S. Truman, has been delayed to emphasize the collapse of American military readiness, and thousands of illegal immigrants detained prior to deportation were released to emphasize the collapse of border security that will presumably be caused by the sequester.
The fiscal cliff and the sequester have both taken their toll on voter and business confidence. The threat of impasse over the debt ceiling at the end of the month will likewise keep markets unsettled. It has become increasingly apparent that Congress and the White House are governing by crisis; we lurch from crisis to crisis, the government resembling nothing so much as a mob of zombies shambling in search of its next meal of brains.
The problem with zombies is that they beget zombies. The economy is in a fragile recovery, not rising up with renewed vigor from its sick bed, not lapsing into death, but reanimating with little direction and no clear path to a healthy future. The true unemployment rate remains locked firmly in the double digits, and business profits are creating no enthusiasm for business hiring. Zombie politics is creating a zombie economy.
A serious problem in the economy now is uncertainty. Republicans, looking to the supply side, believe that cutting taxes will give businesses the confidence and incentives to start hiring. The problem as they see it is a tax code that punishes hard work and investment, so the way to fix investment is to fix the tax code.
Businesses don’t hire because they are profitable; they hire because adding employees will make them more profitable, and because over the foreseeable future, profitable employees won’t turn suddenly into a liability. Cutting taxes to push up profits won’t create greater business certainty unless other, more fundamental problems are addressed.
The Democrats come at this from the demand side, assuming that if only the government can spend more, it can put more money in consumer pockets and stimulate demand for goods, thus giving businesses a reason to hire more workers to produce them. The problem as they see it is insufficient demand due to a government that is too stingy with spending.
People don’t buy houses and cars just because they have money in their pockets. They buy them if they have money and if they aren’t worried that their jobs won’t disappear tomorrow. Major purchases are a vote of confidence in a family’s economic future, and until more fundamental problems are addressed, there will be no surge in consumer demand for big-ticket items.
None of this means that cutting taxes or boosting government spending won’t result in some production and consumption, but they will act at the edges of the economy, producing anemic hiring and output gains.
The more fundamental problem and a huge source of uncertainty is the enormous overhang of unfunded liabilities in our economy - that is, entitlements and pensions. The national debt is a bit over $16 trillion, about 100 percent of GDP. Last year’s budget deficit was over $1 trillion, or 7 percent of GDP.
Unfunded liabilities of the federal government are in excess of $87 trillion - 550 percent of GDP.
In order to make those liabilities fully funded, the government would have to raise about $8 trillion per year in taxes. Anything less, and the combined current year deficit and growth of unfunded liabilities will put us deeper in the hole. If we taxed every corporation and individual earning more than $70,000 at a 100 percent rate, we would raise only $6.7 trillion.
Unfunded liabilities - Social Security, Medicare, federal employee pensions - are sucking the life out of the American economy. Tax reform is essential to improving our economic environment, but it isn’t what makes the future almost absurdly horrible to contemplate. It will greatly improve confidence that our problems can be fixed, but at some point it will be imperative that entitlements be addressed directly.
The fiscal cliff, sequestration, and even the debt ceiling are manufactured crises involving arbitrary and artificial deadlines. As we stagger from one to the next, we do it blind to how bad things really are. We’re zombies who think we’re still fully alive.
Our political leaders are shambling around blindly. Unable to fix anything, they’re good only at instilling terror in those who watch on. Like zombies, they wander in search of more to devour with no apparent concern about the devastation they’re leaving in their wake. Unlike “real” zombies, our political and economic zombies can be cured - we don’t need to shoot them in the brain and start over. We do need to look at them realistically.
Closing tax loopholes isn’t enough. Cutting taxes isn’t enough. We’re in desperate need of entitlement reform, and if we don’t try to get it, the debt ceiling talks will be a fraud. The smart money, though, is on Congress and the president punting - again. That’s zombies for you - no sense of responsibility and no serious solutions to anything, just irresponsible appetite and more zombies.
James Picht is the Senior Editor for Communities Politics and teaches economics at the Louisiana Scholars’ College in Natchitoches, La., where he went to take a break from working in Moscow and Washington. But he fell in love with the town and with the professor of Romance languages, so there he stayed. Now he teaches, annoys his children, and makes jalapeno lemonade. After watching Congress in action, he thinks it should be rated TV-MA. He tweets, hangs out on Facebook, and has a blog he totally neglects at pichtblog.blogspot.com.
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