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Horse-Trading

07/24/2012

Republicans and Democrats agree the budget deficit is a huge problem that must be resolved.  However, with obedience to the right wing extremists, the Republicans will not agree to any tax increases.  Likewise, with obedience to the left wing extremists, the Democrats will not agree to cut any entitlements, like Medicare and  Social Security.

Since the representative democracy we love seems to be failing us, maybe the solution is to embrace the opportunity known as the Fiscal Cliff.

Without exception, every economist predicts that “going over the Fiscal Cliff” will be bad for the economy.  The worst prediction I have seen is a 5% recession, meaning GDP would shrink 5%, which is severe.  (Assume for comparison that the 2008-9 recession was 6.4%)  Because this new recession would not be result from a financial crisis, it would probably be short-lived, certainly shorter than the last one.  It is also safe to assume unemployment would quickly jump to 10% or more.

So, here’s the deal:  If I tell you we can drastically cut the deficit and eventually return to a budget surplus, like we enjoyed in 2000, are you willing to accept a short, severe recession now?

And, if you accept this deal, are you not repudiating representative democracy?

The most optimistic scenario I’ve heard is that Congress will just “kick the can down the road” another year, which is dangerous.  Indeed, just this morning on CNBC, my beloved professor from Wharton, Jeremy Siegel, predicted the Dow would immediately jump a thousand points if the “can” got kicked into new year.

All I know is that the world will be a better place when Washington gets out-of-the-way of Capitalism . . .

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