National View: Manufactured Crisis Limps to Conclusion



The news that leaked out this morning is that Senate Republican Leader Mitch McConnell and Vice President Joe Biden made significant progress toward perhaps a deal that would prevent the so-called fiscal cliff.

The reality is that there is no real fiscal cliff, only tax increases for 2013 that would easily be reduced a month or two into the year without much turmoil, except perhaps for an over-reaction of the financial markets.

The deal looks like they would compromise on the tax increases, pushing the level up to $400,000.  Even at that level, this would be a big victory for the President.  Although liberals are yelling already that the President is ready to cave, they too seem to be missing the point here.

Senator Lindsey Graham seemed to get it most – when he said that the President won.

“Hats off to the president. He won,” Senator Graham said. “What have we accomplished? Political victory for the president. Hats off to the president. He stood his ground. He’s going to get tax rate increases, maybe not at [$]250[,000], but on upper-income Americans. And the sad news for the country is we’ve accomplished very little in not becoming Greece or getting out of debt. This bill won’t affect the debt situation.”

The funny thing in all of this is that the crisis was to the advantage of three sides here – the President, the Republicans, and the press who fanned the flames.

Hearing Lindsey Graham lamenting the fact that the bill will not impact the debt situation is laughable.  The Republicans have cared about the debt and the deficit during two stretches since the early 1980s.  They cared about in when Bill Clinton became president and that was the only stretch when we reached a balanced budget.  And they quickly forgot all about it as soon as Bush became President.  Suddenly, after eight years of exploding deficits and not caring, the debt is the big issue for the Republicans?

The truth is the Republicans did not care in the 1980s and 2000s when the deficit was being built through military spending, but saw it as a means to cut social spending in the 1990s and now.

The Republicans also know they can settle now and even given President Obama a win, because the debt ceiling is the bigger issue and a much more real crisis.  The Republicans never really had leverage here – they will with the debt ceiling.

President Obama wanted this crisis because it enabled him to expose the Republicans for their recklessness.  He already was able to embarrass the house speaker when John Boehner could not even get his own caucus to support his “Plan B.”

He has watched his approval ratings soar as the Republican leaderships’ plummet.

Yesterday he told David Gregory, “I think this notion of, ‘Well, both sides are just kind of unwilling to cooperate.’ And that’s just not true. I mean if you look at the facts, what you have is a situation here where the Democratic Party, warts and all, and certainly me, warts and all, have consistently done our best to try to put country first.”

He continued, “And to try to work with everybody involved to make sure that we’ve got an economy [that] grows. Make sure that it works for everybody. Make sure that we’re keeping the country safe.”

“But generally if you look at how I’ve tried to govern over the last four years and how I’ll continue to try to govern, I’m not driven by some ideological agenda. I am a pretty practical guy. And I just want to make sure that things work. And one of the nice things about never having another election again, I will never campaign again, is I think you can rest assured that all I care about is making sure that I leave behind an America that is stronger, more prosperous, more stable, more secure than it was when I came into office,” he said.

So by compromising even at $400,000, he will get to say that he was not ideological, he was willing to compromise, the Republicans were to blame for this.

The truth is that this was an overblown crisis from the start.  We hear a lot of talk from the right that the media is ideologically driven and they lean left.  But this is a perfect example of how that is not really accurate.

This is a dead time for the media normally.  People are not paying attention to the news.  They go on vacation, they spend time with their families, they stop following the news.  Now suddenly the media have a major story.

It is not that every single person is riveted to the television, but more people are paying attention than usual.  The White House staff cut short their vacations, Congressional people are in Washington, correspondents have something to cover.

There are real consequences from the failure of this deal.  There would be spending cuts to a variety of agencies – a self-imposed situation for failure to finding a spending alternative.  Tax credits for the working poor, families with children, and those paying college tuition would expire, as would emergency extra unemployment benefits.

And people would see their taxes go up.

The belief of many is that the policies as a whole would result in a reduction of the money that goes into the economy.  That would produce an economic slowdown and some believe it would cause it to fall back into recession.

However, and this is the point, none of this is likely to happen immediately.  Therefore January 1 is not a real cliff, so much as a slow descent into the seven circles of economic hell.

This is like the Y2K scare all over again.  Some have noted the IRS has not even issued instructions on changes to withholding calculations for personal income taxes.

Even when they do, it may take a few cycles for employers and payroll companies to adjust their systems.  Moreover, the Labor Department could pay those extended unemployment benefits retroactively, as it has done in the past.

The bottom line is that unpleasant things begin to occur tomorrow, but that does not mean the end of the world or immediate plunge of the economy.

The Democrats could gain an advantage by waiting past January 1.  At that point, the taxes will automatically revert back to the pre-Bush tax cut days.  That means that any changes that are agreed to afterwards become tax cuts rather than tax increases.  That means that the Republicans would only need to vote to lower taxes on those making less than $250,000 rather than voting actively to raise taxes on those making over $250,000.

Right now, it seems like we are not going there, but there have been enough bumps in the road not to count one’s chickens before they hatch.

Regardless, the real showdown this year is going to be over filibuster reform and the debt ceiling.  Crisis may be averted for now, but it’s only temporary.

—David M. Greenwald reporting


About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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13 thoughts on “National View: Manufactured Crisis Limps to Conclusion”

  1. David M. Greenwald

    I did mention that the financial markets would panic, but as long as people keep their money in the stock market, I expect that to be a temporary problem.

  2. Mercy4all

    as someone who has run 2 small businesses for 30 yrs I know the 2 ways to stay solvent, even profitable, raise fees (taxes) and borrow money (the debt) for many years, decades really, you could get relatively cheap, or at least very reasonable loans and you were rarely declined. About 5 yrs or so ago that all changed. though my law practice has very few hourly paying clients my friends whose do have gone from about 50 bucks an hour decades ago to several hundred. for a few, the really good, the really desired, it works. for many not so much. In family law, the vast majority of prospective clients are pro per (self represented) this became especially easier when the government was providing self-help offices in most courthouses, another service thats taking huge hits these days. And loans for small businesses are almost impossible to get. the big banks and Wall Street got the bailout, so much for trickle down economics. so getting loans and raising fees for service based business is almost impossible if you want to stay competitive.

    Anyway, welcome Government to reality. The ability to borrow is almost gone and increasing taxes (or allowing higher ones to come again)is very politically dangerous. And with most politicians both uncourageous about doing anything controversial and clueless as to how to run a business or a government strapped for money with lots of obligations, traditional ways to get more gone and voila, a crisis. It will be interesting, scary and dangerous but interesting to watch them work through this.

  3. Frankly

    [i]I did mention that the financial markets would panic, but as long as people keep their money in the stock market, I expect that to be a temporary problem. [/i]

    Hmm… Has CalPers figured this potential big drop in the stock market in their pension analysis?

    [i]The truth is that this was an overblown crisis from the start. We hear a lot of talk from the right that the media is ideologically driven and they lean left. But this is a perfect example of how that is not really accurate[/i]

    David, your point here is very, very weak.

    The media is liberal-biased. But it is also addicted to increasingly over-blown emotive sensationalism. That tends to favor the Party with leaders that say “Democrats should never let a good crisis go to waste”.

    The reason you and other liberals think it is over-blown is that you know it would result in cuts to the military… something not currently supported well enough from the dominate looter/moocher electorate. However, those looters and moochers WILL demand that all the programs and tax breaks that THEY enjoy are returned to them. And, the Democrats will go to work doing just that. So, in the end you get just what you want. That is why you are not too worried.

    But what you don’t seem to understand or care about is the impact to business and capital investment. If you could do the math and equate it to the real pain that will be felt by the classes of people you advocate for and seem to care more about, you would see the fiscal cliff as being extremely frightening.

  4. Don Shor

    “Economists predict that if taxes increase, economic growth may halve during the first quarter of 2012, and a spending pullback could lead to a new recession during the first half of the year, causing the economy to shrink by 0.5 percent.”

    Bond manager,
    “If the government does nothing and the spending cuts and tax increases take effect, we get a big fiscal contraction. As painful as that is, I think it’s a very good scenario for the bond market. That’s because the fiscal contraction likely means slower growth and lower inflation, which means lower bond yields. Furthermore, this scenario would likely lead to considerable policy uncertainty as market participants would expect some sort of policy U-turn in the near future; that uncertainty could lead to a flight to quality, further supporting Treasuries.”

    Investment analyst,
    “The more fiscal austerity that kicks in, the bigger the effect it has on economic growth. Depending on how you measure it, the automatic spending cuts and tax hikes would cut as much as 4%-5% of GDP. If you consider that the economy is growing around 2% a year, that would be enough to throw us back into recession.
    According to our research, corporate earnings could decline by double digits, perhaps as much as 20% or more. If this happened, it would have a tremendously negative impact on the stock market and other riskier asset categories.”

    Paul Krugman, while arguing Obama should not make a deal:
    “I don’t mean to minimize the very real economic dangers posed by the so-called fiscal cliff that is looming at the end of this year if the two parties can’t reach a deal. Both the Bush-era tax cuts and the Obama administration’s payroll tax cut are set to expire, even as automatic spending cuts in defense and elsewhere kick in thanks to the deal struck after the 2011 confrontation over the debt ceiling. And the looming combination of tax increases and spending cuts looks easily large enough to push America back into recession.
    [But] there’s no insta-recession on January 1. It will slowly get worse and worse, but it can be reversed at some point early in the year, unlike a debt ceiling default, which would be an instant catastrophe.”

  5. medwoman


    [quote]the dominate looter/moocher electorate[/quote]

    I would like to propose a simple New Year’s resolution for us.

    You refrain from using the simplistic, meaningless, nuance lacking phrase ” looter/ moocher”, and I will refrain from using the equally simplistic, meaningless, and nuance lacking phrase ” dog eat dog” capitalist exploiter.

    Deal ?

  6. Rifkin

    [i]”The deal looks like they would compromise on the tax increases, [b]pushing the level up to $400,000.[/b] Even at that level, this would be a big victory for the President. Although [b]liberals are yelling[/b] already that the President is ready to cave, they too seem to be missing the point here.”[/i]

    From what I have been reading (mostly The Economist) the main actors who have favored increasing the [i]tax the rich[/i] level for families from $250,000 to $400,000 have all been [b] liberal or moderate coastal Democrats ([url][/url])[/b]. The main senator (who actually wanted the number at $500,000) has been Charles Schumer of New York. Dianne Feinstein has also been on board with Schumer. Their thinking seems to be that while $250,000 is “rich” in Kentucky or Alabama, it is not in New York City, Boston or San Francisco.

  7. Frankly

    Medowman… Re: “Looters and Moochers”

    From Wikipedia:
    [quote]“Moochers” demand others’ earnings on behalf of the needy and those unable to earn themselves[/quote]

    [quote]The looters are proponents of high taxation, big labor, government ownership, government spending, government planning, regulation, and redistribution [/quote]

    Basically, both define modern liberalism. The former is the liberal layperson demanding that someone take from the producers, the latter is the elite liberal with political influence and power to actually do the taking.

    So as not to evoke any protective response from the thinking that I am disparaging real people in need, I will insert “Randian-” in front of those two words so that we know I am talking about that Rand definition.

    How does “Randian-Moocher” and “Randian-Looter” work for you?

    By the way, I don’t have a problem with “dog-eat-dog capitalist exploiter”. As long as that person is not breaking the law, and conducts his/her pursuits in a moral way, capitalism and economic competition rocks!

  8. Don Shor

    You must mean the [i]Ayn-Rand-is-a-hypocritical-idiot-defined[/i]-moochers and [i]Ayn-Rand-is-a-hypocritical-idiot-defined[/i]-looters. As long as you put all that in, I’m good. Otherwise, you’re just continuing to insult everyone who doesn’t agree with you, much as Ayn Rand did.

  9. wesley506

    According to a Cato Institute study (#703, July 25, 2012) “Corporate welfare in the federal government costs taxpayers almost $100 billion a year.” I would guess that if to this total you added all of the state and local corporate welfare given in the name of economic development incentives, you would get a total that is much greater than anything the individual [i]looter and moochers[/i] receive.

  10. medwoman


    [quote]How does “Randian-Moocher” and “Randian-Looter” work for you?

    Basically Jeff, nothing “Randian” works for me at all. I left Randian philosophy behind upon entering high school, right around the time that I realized that she was an apologist for a rapist and had no ability to distinguish an individual’s true self interest from pure unadulterated greed regardless of the cost to anyone else. And yes, I have read all of her major novels, some more than once, and many of her articles. I have also watched a number of her interviews. She has made it clear through her interviews, her writings, and as best as I can tell from interviews and the writings of others, that she cared about only herself. It appears that she had the tendency to bond with others for short periods of time, but only as long as they served as her acolytes, and then, only when they were absolutely deferential to her opinions. Nothing about this philosophy, which totally ignores the social side of man works for me at all.

    I say this as someone who is no stranger to competition. One does not get to be a doctor, let along an Ob/Gyn in one of the most competitive areas of the country without being willing to compete. But this competition is based on doing the absolute best that one can do in classes, on the wards, on rounds and in tests. It is not about undermining one’s colleagues, which would also undermine patient care. It is about working together to provide the best care possible. Collaboration and competition are not enemies of one another as you seem to like to portray. And caring about the fate of one’s fellow humans does not make one weak either spiritually or mentally. This was Rand’s position and I whole heartedly reject it.

  11. wdf1

    Tentative ‘fiscal cliff’ deal reached in Senate ([url]–politics.html[/url])

    Now we can live happily ever after.

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