Flinching from a[euro][umlaut]Suicide

By Frum, David | Newsweek, January 4, 2013 | Go to article overview

Flinching from a[euro][umlaut]Suicide


Frum, David, Newsweek


Byline: David Frum

The fiscal-cliff compromise doesn't solve any of our real problems.

We've been warned for years about a coming American debt crisis: a day when markets and creditors would force the United States to raise taxes and cut spending in one sudden painful convulsion. Year after year, that crisis has failed to materialize. And so, in 2010-11, Congress went to work to manufacture an artificial crisis: to impose by legislation the shock that markets obstinately refused to deliver. What was called "the fiscal cliff" was a metaphor for this artificial shock, this deliberately engineered crisis.

More than a century ago, Otto von Bismarck offered a grim assessment of those whose fears of a crisis to come lead them to precipitate a crisis now: it is, he said, like committing suicide for fear of death. In the last days of 2012, Congress and the president together flinched from suicide. They agreed to a last-minute deal to avoid the fiscal cliff: a small tax increase, extension of unemployment benefits, and, otherwise, postponement of the main issues to later.

What should solutions-minded Americans think of the deal? The short answer is that it makes none of the country's problems better and at least some of those problems worse.

Problem one: jobs, incomes, and economic growth. The fiscal-cliff crisis was contrived on the supposition that the debt and the deficit represent the country's most urgent problems. That supposition would surprise the millions of Americans who have given up looking for work--and the great majority of Americans who remain today poorer and less well paid than they were six years ago.

There is always a limit to what government can do to accelerate growth and encourage hiring. Whatever that limit, though, it's surely somewhere north of where we stand now. The fiscal-cliff deal put an end to the payroll-tax holiday. It put an end to aid for budget-slashing state governments. It continues the long, miserable failure to lighten debt burdens of overmortgaged households. The closest thing in the agreement to an economic-growth item? The deal extends some tax credits to the wind-energy industry--and that's not very close at all.

Problem two: overspending. Republicans say, "We don't have a tax problem. We have a spending problem." We can be more specific: we don't have a spending problem. We have a health-spending problem. The United States spends 60 percent more per person on health care than the typical developed world country. It spends about 25 percent more per person than the next-most free-spending countries, Switzerland and Norway. That extra spending buys worse health outcomes in almost every way we can measure.

Washington insists on talking about "entitlements"--as if the crazy costs of Medicare and Medicaid were a subproblem within the larger problem of the federal budget.

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Flinching from a[euro][umlaut]Suicide
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