Thursday, January 3, 2013

Averting the Fiscal Cliff and Casting Out Demons

“When the unclean spirit has gone out of a person, it wanders through waterless regions looking for a resting place, but it finds none. Then it says, ‘I will return to my house from which I came.’ When it comes, it finds it empty, swept, and put in order. Then it goes and brings along seven other spirits more evil than itself, and they enter and live there; and the last state of that person is worse than the first. So will it be also with this evil generation.” 
Matthew 12:43-45

Jesus was talking about the so called “Fiscal Cliff.”


The “person” is the country and the “unclean spirit” is the combination of tax increases and spending reductions that congress created as a way to force itself to deal with the national debt. Congress has, at least temporarily, driven out the unclean spirit, but they have not replaced it with anything positive. Unless they fill that void, the unclean spirit will return and bring friends with it.

It is amazing (and not in a good way) how much time and effort (much of it negative) congress has invested in averting a crisis that it created. And the false demon of the fiscal cliff kept them from addressing the real problems of economic growth and job creation.

The debt is a long term problem, but the immediate problem is jobs. And almost everyone admits this. In the presidential campaign, both President Obama and Governor Romney talked about jobs and economic growth as the most critical issues facing the nation. If the debt were the most important issue, then the fiscal cliff would be a solution rather than a problem. But almost everyone in congress wanted to avert the fiscal cliff because they believed, as almost all economists believed, that it would throw the country into another recession.

So one demon has been cast out. One catastrophe has been averted.

And the markets around the world seem to like this; at least they like it better than the alternative. The Dow Jones Industrial Average was up over three hundred points yesterday. Investors apparently think that congress has done the right thing.

Lost in all of the Fiscal Cliff hoopla is the fact that as of January first, the payroll tax has gone up for everyone. The Social Security tax has gone back to 6.2% from the temporary rate of 4.2% adopted as an economic stimulus for the past two years. The two percent increase applies across the board on all earned income up to $113,000. Intentionally underfunding Social Security never seemed like a good idea to me, but a two percent across the board tax increase isn’t a good idea either. Economists say it will slow economic growth by about half a percentage point, which doesn’t sound like much, but with the economy growing at only 3% annually, that’s a loss of nearly 20%.

Still, we averted disaster.

Maybe now we can focus on the need for job creation and economic growth. Ironically, for all of their differences, both Republicans and Democrats seem to agree on the need for economic stimulus. Conservatives want to do it with tax cuts and liberals want to do it with spending, but those are just different sides (literally) of the same coin. The argument we should be having is about which kind of stimulus will work best.

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