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The Market Ticker - The Dogma Is Out (Fiscal Cliff)

 November 30, 2012 01:32 PM

There's no indication that the major parties, or for that matter so-called Libertarian commentators, grasp the real issue here as of yet.

Unfortunately this all comes down to ideology before principle, and willful and intentional recto-cranial inversion when it comes to arithmetic, which is simply indifferent to political considerations.

Take the Democrats; they insist that "entitlements" are not really on the table, particularly Social Security and Medicare.  Note carefully that the Democrats studiously evade any attempt to separate the two programs, despite the fact that Social Security was within fighting distance of being solvent right up until they, along with the Republicans, cut the tax base out from under it.

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Medicare, on the other hand, is utterly impossible to fix.  Medical care is some 20% of our GDP today, double that of other industrial, first-world nations.  You'd think that would be impossible and it would be but for the intentional (and intentionally-ignored!) monopoly-style protections that the medical industry at all levels has managed to get written into the law.

Absent those protections the cost of medical care would be roughly comparable between developed countries.  With them we wind up paying for a huge percentage of every other nation's true cost of care; it is shifted to us literally at gunpoint with the government there to shove their guns up your nose (and then toss you in a prison cell) if you should attempt to use capitalism to arbitrage out those differences.

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This is what drove federal medical spending from $53 billion in 1980 to ~$850 billion in 2011.  For comparison the CPI went from 82.4 to 224.9, or 273% of the 1980 level.

This means that medical care should have cost the federal government $145 billion last year -- not $850 billion, a reduction of 83% -- which would cut last year's deficit by more than half (~$700 billion) all on its own.

Were we to cut that crap out the cost of medical care would dive by 60% or more all-in.  The result would be that Medicare could be reduced in scope and cost by 80% or more since it could be scaled back to provide only routine medical services -- the cost of "extraordinary" services would be so much cheaper that most Seniors could afford to pay cash, and those who refused to make any provision to do so during their working life could be reasonably turned away from those extraordinary services -- but not the routine ones.

Neither Democrat or Republican will touch this problem but it is the largest single issue in the budget, the growth of the national debt and budget deficits.  It is also the source of much of the false demand in our economy today.

The key point: No actual solution to our budget problem is mathematically possible without putting a stop to this.

Now let's look at the Republican side, because they're responsible (in large part) for the other half of the mess.

The next-largest problem with regard to growth is our military budget.  It must be cut in half.  But to cut it in half immediately is untenable.  We're getting a short-term assist here, however, in that we're using "fracking" to extract more oil and gas.  That won't last for too long but it does give us the ability to resolve our energy problems within the next 10-20 years on a permanent basis -- if we start now.  We can temporarily shift a small amount of our military spending there, and over 10 years gradually decrease the total to half of what it is today.

If we do those two things while holding taxes to 20% of the economy the federal budget is largely fixed.

Here's the problem from all sides of the aisle:

Government deficit spending is dollar-for-dollar additive to GDP, although the demand it represents in the economy is not organic and absent that deficit spending would not exist.  This the partisans will never admit, because to do so is to admit that (1) they've been lying to you serially for decades and (2) we must accept an economic contraction in the double-digits when we stop lying!

Now let's look at the rest.  Welfare in all of its forms provides a powerful disincentive to work.  So does our tax code, which is archaic and idiotic.  If you want a vibrant economy you want capital formation to have strong incentive in preference to consumption and (especially) debt, and that in turn means you want to remove from taxation the accumulation of savings (capital) while shifting taxation toward consumption and removing all tax preference that is accorded to debt anywhere in the economy.

The Fair Tax does all of this.  It also is progressive.  But neither major party is seriously interested in it, despite claims to the contrary, because the amount of tax you pay is "in your face" on every sales receipt and that paints a huge political target on the chest of every Congressperson and Senator.

Transparency is the enemy when it comes to Congress, you see.

Lawrence Vance, a commonly-held-forward person who speaks on alleged Libertarian viewpoints, has an equally-serious problem in that he too plays the conflation game.  He says:

Now, any tax rate increase — payroll, income, capital gains, or estate — is a bad thing because it allows the federal government to continue to recklessly spend money on its various unconstitutional programs, income-redistribution schemes, foreign wars, and empire building. Likewise, the decreasing of any tax deduction, credit, or exemption is also a bad thing because the end result is that more taxes are taken out of the pockets of Americans and paid to the federal government so it can continue to recklessly spend money on its various unconstitutional programs, income-redistribution schemes, foreign wars, and empire building.

But if going over a cliff is a bad thing, then why is the elimination of extended unemployment benefits and the imposition of spending cuts — minuscule as they are — considered part of the "fiscal cliff"? Abolishing any government program — and especially one that pays people cash — is always a good thing. And short of abolishing a government program, cutting government spending on any program by any amount, even if it is merely a reduction in the projected growth of government spending, is always a good thing compared with the alternative of no cut or an increase.

Of course all taxes are bad -- right up until you'd like a fireman to put out your house, a cop to arrest the guy who just stuck a gun up your nose and muttered "gimme all your money!" or some group of brigands just commandeered the ship you're taking a nice vacation on and you'd really, really like it if our military would come by and, well, you know.....

Further, Vance, just like a good political jackass or elephant, conflates Social Security and Medicare.  He does it because it's convenient for him and intentionally distorts the truth -- the two programs are very different fiscally and one can be fixed while other cannot.  Since he wants to kill both he conflates them and then argues they're "impossible."

That is a lie.

This is not to say that Social Security should exist.  The philosophical argument is an entirely distinct one from the operational -- or mathematical.  Those who wish to make a philosophical argument and are actually able to make that argument stick on the merits have no need to lie about the fiscal realities of what they claim will occur.

It is the last bastion of scoundrels, whether Democrat, Republican or alleged Libertarian to conflate that which can't work with what can, then using the impossible to demonize the troubled-but-fixable.

That's called politics, I suppose, but those of us interested in actual solutions are called to Rise Above and loudly call "BS!" on those in all political persuasions that run this sort of garbage in public, no matter their party banner.

The truth is quite simple -- we all agree, other than hard-core anarchists, that some amount of government is appropriate.  Since that's the case we are now arguing for (1) how much government we want, (2) what we want it to do, and (3) what we're all willing to pay for it.

All three of those have to align and the default action if they don't is that government must not proceed.

We must have this conversation and put the government back in the box that is bounded by tax receipts -- right now, not "on the come" with a kiss and promise of "tomorrow."

We must discard to the gutter and then spit on them as we pass all political parties and individual partisans who run polemics and conflate that which cannot work with that which can in an attempt to ram their philosophical talking points through. 

That tactic is an act of lying no matter who is doing it -- Democrat, Republican or Libertarian, and the time that our nation can tolerate that crap has passed.



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