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Solution for the fiscal cliff problem

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Posted: Wednesday, November 14, 2012 12:00 am

Listening to Mark Shields on KVIE/PBS the other night, I came up with this solution to the whole fiscal cliff problem.

1. We know that the fiscal cliff is bound by law to happen unless Republicans and Democrats compromise and agree upon a sensible way to cut federal spending and raise federal revenue.

2. We are pretty sure No. 1 isn't going to happen, because the Democrats basically came out encouraged by this last election to not make spending cuts, and the Republicans have mostly, almost entirely, signed a "private" agreement not to raise taxes.

3. Businesses need to plan future investments according to expectations, and expectations are that no agreement will be reached.

4. Businesses will decide to minimize investment in growth due to expectations of negative effects of the fiscal cliff.

5. Self-fulfilling prophecy of negative reaction leads to negative expectations of the fiscal cliff and will cause an actual recession.

6. This recession will make the deficit we are trying to reduce even greater.

7. The way around this is for Congress to legislate that once that fiscal cliff has arrived, certain revenues will be raised, because they are already working from a lower basis, and other expenditures will be cut less than the fiscal cliff had specified. The Republicans have not really raised taxes, the Democrats have restored some spending programs. Everybody has done what is expected.

8. You announce the creation of this political stew ahead of time so that businesses know that the fiscal cliff won't really cause a recession.

9. At some point in future time, Congress returns to responsible governance.

Kinda reminds me of "Alice in Wonderland," but it might work. It also reminds me of Alcohol Anonymous' 12 steps. Unfortunately, I can't find need for the other three steps. I'm working on it.

Steve Sanguinetti


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