Wednesday, December 26, 2012

There is no Cliff

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Both side of the political isle would have you believe that an economic apocalypse is just around the corner, that a Myan-esque event of biblical proportions is about to explode upon the US economy.  They have dubbed this event (originally by Ben Bernanke, I believe) the ominously sounding “fiscal cliff”, and without some serious legislating, they say, we are about to drive our Ford Economy right over it.

Don’t believe them.

In fact, nothing would be more beneficial for the long-term health of our nation than to drive straight over this precipice.

The cliff is simply a combination of automatic spending cuts and expiring tax breaks.  The result would be a very sizable reduction in the US budget deficit.

“But this will cause a recession!!!” they say.  Yes, it might, but there is nothing wrong with recession.  The term ‘recession’ is thrown at the public like an upper-cut of despair, when really it is just an abstract measurement of relative GDP growth, derived from approximations of estimates of projections.  In an economy, many things can be going right, and many things can be going wrong, that can’t be summed up into a number.  The real economy is the sum thousands of actions, taken each day, by hundreds of millions of people.  Saying the economy is in “recession”, because the approximated value of all these actions by all these people over all these days is decreasing, is like trying to sum up Moby Dick in a sentence: “It’s about a whale… or not”.  It conveys no meaning whatsoever.

What you should really be worried about not the short term “fiscal cliff” and possible resulting “recession”; it is the long term health of our treasury.

We are currently 16.3 trillion dollars in debt.  We are currently adding about a trillion a year, or about 4 billion every day.  This comes out to about $52,000 per person.  This is not an abstract concept.  This is a very real thing.  We are paying for our standard of living, our wars, our schools, our social services, etc, with about 30% borrowed money.  This unbalance will have to be reconciled, and the longer we wait, the more difficult it will be.

THIS is the problem you should be worrying about.  It is not a week away.  It might not even be a decade away, but it is very real.  It will make our current fiscal cliff look like a pimple on a face of a fly. 
I do not have time to describe the differences between the Keynesian-Monetarist theory of government spending and debt and the Austrian–Libertarian explanation.   I’m definitely not the most qualified to do so.  Go look for yourself.  The internet is filled with explanations opposite of what the politicians and their hired economists are spewing.

At the very least, next time someone asks you about your position on the fiscal cliff, just respond:

“There is no cliff”.

And see what they say. 

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