I disagree with Hightower.

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Monday, August 6, 2012

Fiscal Cliff and More

"All together, the fiscal cliff’s total impact equals slightly more than $600 billion, or 4 percent of gross domestic product, and if no action is taken, the Congressional Budget Office projects the economy will shrink by 1.3 percent in the first half of 2013 as a result."


I am totally frustrated with our "leaders".  From the outside looking in this looks like a total train wreck waiting to happen.   I would wager that it looks at least as bad from the inside looking in, if the viewer is not stricken with partisan political I-can't-see-the-forest-for-the-treesitus.  The numbers in this article speak for themselves.  I hate to sound like a broken record but now is not the time to be taking money out of the economy through taxation OR drastic spending cuts.  The worst part of these 4 years of almost total gridlock in Washington has most definitely been the uncertain business climate that it has created.  My clients aren't sure which way to turn and I am not sure which way to advise them to turn. 

I am sure that when Obama agreed to extend the "Bush Tax Cuts for the wealthy" at the end of 2010 that news was not greeted with enthusiasm by his base.  I understand that.  I have gone on record here as saying that I was not a fan of the tax cuts when they were put in place and I haven't seen anything to change my mind.  But there is truly a time and a place and now is certainly not the time.

One thing that government CAN do for business that I think we can all agree on is to try to provide a stable economic environment legislatively going forward so business people can make decisions based on how things are going to be with some degree of confidence.  It's been awhile since we had that.  This running everything right up to the deadline on every major issue hoping the other side will blink is just irresponsible childish governance.

And where are our leaders now?  Working diligently to fix this very serious problem?  Burning the midnight oil in smokey back rooms trying to come up with a deal?  Nope.  Gone home to convince their constituents of what a good job they are doing representing them so they can get reelected to go back to Washington for another fun round of political chicken, while businesses get jerked around and try to see the future in their crystal ball.  What other choice do businesses have?  Decisions must be made.  For the most part my clients are preparing for the worst.  Hunkering down.  Hunkering down is not good for an economy that is just limping along already.  So not only do we have the specter of the "fiscal cliff" but, and perhaps even worse, we have the business and investment community pulling back out of fear and uncertainty. 

I know we have self-professed optimists on the YA blog.  But I can't work up any optimism over these issues based on anything I have heard or read.  How about you?


  1. .
    Preliminary note: It is an article of faith among Republicans that one of the things holding up the recovery is the uncertainty of the business and tax environment.
    Your remarks about your clients seem to confirm that.

    Main response: I thought that everybody agreed with you about the fact that now is not a good time for tax increases-spending cuts.

    I think that (deficit) spending for infrastructure now and a combination of spending cuts and tax increases in the future is the proper way to go. One problem with selling that is that the Rs have been burned so many times by "phony" cuts "to be announced later" that they are reluctant to deal.

    I also think that the reason that they (both parties) have brought us to the brink is that each party believes that they will win the next election and then they can have it all their own way. So they choose to just wait.

    I am an optimist and I am hopeful that on Wednesday, Nov. 7th both parties will be served a dose of reality. They will then have about two months before the new congress is seated. If you tell me that it is sad that I am reduced to placing my political hopes in that particular basket, then I will agree with you.

  2. I will reinforce Bruce’s comments by sharing that my clients are also “hunkered down”. Indeed, they have been for the last 2-3 years. For my clients the problem is not money. Most are cash flush; they are just unsure which way to invest it.

    I will add that although my clients are “hunkered” they are also “poised”. They have been holding back for some time and are very ready (an understatement) to resume doing business full scale.

    I will join Wayne in hoping that Nov 7th produces a dose of reality.

    The grid lock in DC is, I think, a reflection of the American voter. As an example I would guess that most readers/contributors of this Blog would agree with Wayne’s hope, but I would also guess that our individual opinions of the “fix” do not line up well.

  3. Wayne I agree with your preliminary note (except that I have heard Ds say the same thing). It doesn't take an economist to figure it out. What is frustrating and maddening is not that they don't recognize the problem (because clearly they do), it is their reluctance to do anything about it, regardless of their reasons. This is tantamount to fiddling while Rome burns, it seems to me.

    As far as everybody agreeing with me that now is not a good time for tax increases and spending cuts, I assume you mean everybody, as in everybody that posts on the YA blog, not EVERYBODY. Because EVERYBODY does not agree. This past Sunday on This Week, on ABC, in the roundtable discussion, I heard Ann Coulter actually speak against NOT cutting government spending now(ie., in favor of cutting spending now)because cutting government spending creates jobs. This in response to an argument that cutting government spending will cost many thousands their jobs. And she began with "Yeah, GOVERNMENT jobs." Yeah, government jobs with the operative word for me here being "jobs", for her "government". And it doesn't take a whole lot of reading to learn that she is far from alone in her sentiments.

    With regard to your plan of infrastructure now, tax increases/spending cuts later (i.e., when the economy is healthy enough to absorb them)I agree, as you know. Let's do it!

    I respectfully disagree as to your theory for the reason why our leaders bring us to the brink time and time again. This has been happening for a while now. These temporary laws that need to be extended every so often are creating more opportunity for clashes that lead to a lot more posturing and speechifying and threats and finger pointing and now even name calling than is really necessary. Pass a law and if we don't like it later change it or repeal it. Especially laws that affect the business environment. I think most business people can deal with just about anything as long as they can plan for it. Making a law temporary automatically brings with it uncertainty.

    I guess I will join Wayne and Tom in hoping for the Nov 7 dose of reality. But as the old saying goes, wish in one hand and spit in the other and see which one fills up fastest. Come on...I said spit.

  4. Sorry, I left out the standard caveat "reasonable" people. In my mind that excludes, for example, Ann Coulter, Van Jones, Jesse Jackson, and Rush.

    I understood that you disagreed with my theory about why they (the politicians) do this. [Of course, it took me awhile to realize that when you said that you "disagreed" that you actually meant that you did not agree with something that I had said. Amazing] Seriously, though, did you have a counter theory?

  5. Very unfortunately, reasonable people seem to be getting in shorter and shorter supply among the Republicans that we see and hear on a daily basis. I don't have much experience listening to Van Jones or reading his body of work so he's obviously not front and center. Jesse Jackson? I would certainly agree with you that he has said some strange things alright...things that make me cringe. But unlike Coulter and Limbaugh, he is hardly at the center of his party. Or maybe my perception is incorrect. As best as I can tell Jackson wields little to no "pull" within the party. But Coulter and Limbaugh certainly seem to have a HUGE Republican following to the point that they could be said to have affected public policy in some ways.

    Be that as it may, my counter theory. Well my counter theory begins very shortly after Barrack Obama was elected when the Republicans announced that their number one goal was to make sure that Barrack Obama would be a one term President. I remember I was taken aback by such a hostile statement right off the bat. And it did not take long to find out that they were dead serious.

    So, what actions do you take if you want to make absolutely sure that a newly elected President does not get a second term? Well, there are 3 things that you can use as weapons.

    Number 1. Public relations/marketing. You have got to tarnish the President's brand. You have your own News Network that happens to be the most watched of the News Networks. Use it. You also have some very friendly talk radio show hosts who also are very popular and will say literally anything. Use them. Attack 24 hours per day. No matter what the subject, bad things are the President's fault, and he didn't have anything to do with anything good that might happen. Plus he hates America and wants to turn us into a socialist country. At best he is not patriotic. OH, and also, he can't talk without a teleprompter.

    Number 2. Political battles are our friends. They afford us opportunities to attack the President and extend the Public Relations/marketing campaign to the very floors of congress. Working with the President does not further our number one goal and could very well end up defeating our number one goal. Learn from Clinton recovery to reelection. We should take every opportunity to bring about conflict and bring every vote down to the wire and use our public relations and marketing people to blame it all on the President's "my way or the highway" tactics. There is a lot that can be done in this area. There is a lot that HAS been done in this area.

    Number 3. Do all that we can to make sure that nothing good happens on Obama's watch that he can receive credit for (again, learn from Clinton path to reelection). This was much more effective after the 2010 elections when Republicans took control of the House. Of course in the first 2 years Obama could have gotten more done than he did, but it's my opinion from my observations that he took the Republican's assertion that they wanted to work with the President in areas we can agree on seriously and spent way too much time trying to placate them, which played right into their hands. There are many examples of this but I have no more room.

    Anyway, that is my counter theory. A single-minded concerted effort to make sure that Barrack Obama is a one term President.

    1. From the center of the whole spectrum I would put them (Coulter and Limbaugh) on the right side of the Republican party. I think that partisans generally see the extremists of the opposition as being representative of the opposition party while recognizing their own extremists for what they are.

      So you don't see it as a joint effort in stupidity, but rather as the efforts of the malevolent Republicans?

  6. I have been around the block a time or two also, and I know that partisans generally think of the extremists of the opposition party as being representative. It certainly makes it easier to paint that party as extremist, both in one's own mind and in arguing. But this, it seems to me, is different. It FEELS different. Not so long ago the Coulters and the Limbaughs were relegated to the fringe wacko part of the Party. No one, even in their own party, took them seriously. But it is different now. Any one who dares to criticize Limbaugh, for example, from the Republican Party does so at their own peril. He has got the big bully pulpit. And I dare say people are afraid of him...afraid for their careers. The party has moved to the right and now the former right fringe is in the middle. It's not so different from what happened in the Democratic Party in the late 60s and early 70s. The Democratic Party was no longer the Party of FDR, Truman, Kennedy or even Johnson. It had moved to the left and put the former left fringe in the middle. That's why the South switched to Republican, as you know. As the old Steven Stills song says, "there's something happening here."

    As for your final paragraph, I would not paint what I said quite that way. I don't believe the Republicans are malevolent. I think they set a goal...their NUMBER 1 goal..and come November 7, there's a good chance they will have met that goal. Do I think they are evil? No. Do I think that they are plotting the overthrow of America as we know it? No. Politics in America is hard ball, and getting harder every election cycle. What I laid out was not so much an indictment of the Rs as it was a reasonable explanation, for why Washington is paralyzed, that seems to fit the facts as I understand them to be.

    In my experience the belief that a group of highly educated, intelligent, high achievers did something because they were just being stupid is almost always wrong. Our "leaders" know exactly what they are doing and exactly WHY they are doing it. It may look stupid from the outside but that is most likely because what we consider to be the top priorities are not necessarily their top priorities. Also, they know exactly what our top priorities are so they use that knowledge to achieve THEIR top priorities. The Rs told us right up front what their top priority was going to be almost 4 years ago, their number one goal. We can say "well, that was just political rhetoric...playing to the base". From where I'm standing the evidence says it was not just rhetoric.