Reasons For Optimism?

There is an air of optimism pervading Washington.  An agreement to avoid defaulting on the national debt and reopening the Government seems near.  Details are lacking but not optimism.  Why?

Most (but not all) Americans are disgusted with what they are seeing taking place in Congress.  The rhetoric is both foolish and non-sensical.  Worse still is the consequences, which would be wide spread and unpredictable, seem of no concern to most Congressional members (Democrats and Republicans both).

Members of Congress who appear at conventions or even on Sunday talk shows does not reveal the underlying problems.  “The President will not negotiate, nor will he even meet with us”, cry Republicans.  “Republicans are holding the Government hostage and wants to gain concessions for not closing government or defaulting on the debt.  No way.”, say Democrats.

So what is behind all this?

That is a tough question to answer.  On one level it is selfish and self centered objectives.  Both Democrats and Republicans are first and foremost interested in retaining their elected office.  Everything else is window trimmings.  So scoring “points” at the other party’s expense is par for the course.

On a different level, there are some basic philosophic and ideological differences.  Ironically to balance the budget (or even put the budget on a path to becoming balanced) requires taking money out of the economy.  The consequence if done too quickly or too deeply could result in an economic slowdown. and could increase unemployment.  It’s both a math issue and a rate issue… how much and how fast.  Both sides understand this.

Pursuing this budget balancing exercise reveals the incompatibility of these philosophic and ideological differences… just how to do it.  Should we cut expenditures, raise taxes, or some combination?

Cutting expenditures begs agreement on which ones (big problem), and raising taxes begs how much and who pays (just as tough a problem).  Some combination seems clearly the most logical path but this runs into two obstacles.

  • (1) On principle, Republicans oppose any tax increase, even in combinations with expenditure reductions.
  • (2) For similar principles, Democrats oppose any cuts to entitlements without a shared effort from new taxes and non-entitlement programs (like defense or farm support).

Republicans visions of balancing the budget run squarely through entitlements reductions, and envision no new taxes.  Democrats see “mouse bite size” spending cuts combined with new taxes.  Hmmm.

Unfortunately neither party seems willing to admit to evident realities.  The tax code is far too complicated, and generally is written to favor the well off (who largely provide financial support for our elected officials).

The largest parts of entitlements (Medicare and Medicaid) are dependent upon the most expensive healthcare system in the world.  Cutting these entitlements simply pushes costs elsewhere or leads to some Americans receiving less healthcare.

It is relatively straight forward to see that increases in tax revenues or entitlement expenditure reductions without first addressing their fundamental dysfunction seems a wasteful exercise.  Finding any agreeable path forward seems like work (a large effort), and that is not an oft observed Congressional habit.

So, as kicking cans goes, there might be reason for optimism.

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