The president has dug in his heels on the point that Republicans must abandon their pledge against no tax increases, as George H. W. Bush did; and the Republicans are concerned, with reason, about being the “Party of No” again. It is an inane debate. I assume that some compromise will be arrived at that will buoy both parties and enable their elected legislators to sing some of America’s splendid patriotic anthems in the halls and on the steps of the Congress and masquerade as problem solvers in the nation’s hour of need. While important, up to a point, this isn’t the issue. There will be a tax increase, to give the president his fleeting moment of juvenile triumph, like that of a child protecting a sand castle from one wave. The automatic elimination of the post-9/11 tax cuts, as a matter of the mere passage of time, would raise public and international contempt for the U.S. political process to such vertiginous heights that something will have to be agreed upon to avoid that.
But, as I among many others have recounted here and everywhere, economics in a sophisticated economy like that of the United States is half Psychology 101 and half Grade 3 arithmetic. But no one, including the learned debaters last week, at this point seems to have grasped that both tests will be flunked, unless the avoidance of the fiscal cliff includes measures that radically cut the deficit and end the unspeakable fraud of 70 percent of the country’s $1 to $1.5 trillion federal deficit being covered by phony notes cyber-clicked into existence from the Treasury’s 100 percent subsidiary, the Federal Reserve. No test of psychological confidence will be passed by this charade, nor any test of Grade 3 arithmetic either. The administration swaddles itself in a few weeks of a record-breaking rise in economic-growth and tax-collection rates. But this is only three weeks, and applies to a built-in annual budget deficit of $1.5 trillion on top of an accumulated national debt that took 232 years to get to $10 trillion in 2008 and made it to $16 trillion this year. (And there are still 5 million fewer people working in the U.S. than there were four years ago.)