By Paolo von Schirach
December 15, 2012
WASHINGTON – The way in which the “Fiscal Cliff” negotiations have been conducted so far by the White House is not very encouraging. Too much posturing. Too much demagoguery. In all this I see a desire to gain political points and not an honest determination to tell the truth about America’s long term fiscal crisis and start working to fix it.
GOP is to blame
Just one example. The White House says that if there is no agreement by December 31 and therefore tax increases for all Americans will kick in at the beginning of 2013, the Republicans are to blame. You see, these bloody minded ideologues, these troglodyte defenders of the fat cats, are doggedly determined to avoid higher taxes for the rich –you know the fair and even handed approach that we proposed and all sensible people have endorsed– and in so doing they will prevent a good deal to be hammered out, this way causing taxes to go up for the struggling middle class. Shame on them!
So, this is it? This is the essence of America’s problems? The real issue at the root of our systemic fiscal crisis is that the rich are not paying their “fair share”? This is cheap populism, easy appeal to emotions through the old fashioned “Us (the many and good), versus Them (the few, the greedy).
This approach may work politically but it will do little to forge a solid bipartisan agreement on what should be the proper size of entitlement programs, who is eligible and when, and how do we pay for all this.
The nature of our problem
In a sense, the problem confronting us is quite simple. Just like other advanced Western nations, America is beginning to suffer the unintended consequences of generous health and income support programs for the elderly that over time have proven to be way too expensive.
Medicare is the worst offender, simply because it has become a large component of a horribly conceived American health care sector that seems to be purposely designed to be grossly inefficient, while driving up costs year after year without any commensurate value.
Bad demographic trends
These are the issues. And, just like in other rich countries, they are made worse by unfavorable demographics. While America in this regard is doing somewhat better than most of Europe and Japan, the trends are worrisome. As birth rates have declined, we have too many eligible old people, and not enough young active people paying into the system.
Let’s make this clear. The entire architecture of all entitlement programs rests on the assumption that a large number of working people pay into the system so that relaatively few retirees can get the money until they die. It also rests on the parallel assumption that retirees will collect for only a few years before they die. But these assumptions are now gone. There are far fewer active people paying into the system. In the meantime, because of medical advances, retirees live longer, and this means that they collect much more. At the same time, the cost of programs seniors enjoys has gone up substantially. Here you have it. More beneficiaries getting more for a longer period of time and a smaller pool of contributors.
This system cannot work anymore
Simply stated, the system as originally designed cannot work anymore. If we want to keep it as is, then we need to increase tax revenues quite substantially, causing economic dislocation. If we do not want to increase taxation, then we have to downsize these programs, while narrowing eligibility criteria.
Conceptually this is very simple. Politically this is really heavy lifting. People need to be told that going forward they cannot expect all these goodies. But it is possible to tell the truth. If America’s leaders really want to lead, they can explain the nature of the problem and then engage in serious reforms aimed at restoring fiscal health, this way “bending the spending curve” and at the same time injecting new confidence in our future.
GOP should abandon its no new taxes pledge
The Republicans have to overcome their ideological biases. As we try and fix this mess, it is appropriate to have more revenue, as long as we do not punish the creators of new economic activities, this way killing the will to invest and start new businesses. The GOP has to get over its almost theological “no new taxes” pledge.
Will this President lead?
That said, we have only one President. And it is up to just re-elected President Obama to lead, even if this may cost him politically. He has to get out and tell the truth about America’s long term fiscal predicament. Our system of social protections is unsustainable and essentially broke. America needs a new Grand Bargain, a new consensus on the appropriate and fair size of entitlements.
This is more important than gun laws
In the aftermath of the Connecticut massacre, a teary Barack Obama pledged to do something about gun laws, whatever the politics. This sounded courageous, even daring, given the way Americans feel about their “right to bear arms”.
Well, with due respect to the children killed in the shooting and their mourning families, our fiscal crisis is a lot more serious. America is getting close to its own demise. Every day that goes by it gets worse. Our national debt keep going up. In the end it will choke us. The President should summon all leaders and engage in serious talk to the Nation.
But, for right now he is just a clever politician. And this is a disappointing indication that Barack Obama does not want to lead. He wants to reinforce his popularity among his core constituents. Good for him, bad for America.