Monday, October 17, 2011

The National Commission on Fiscal Responsibility & Reform: Policy Goals for Economic Sustainability & Recovery

By: Dianne Heath




Erskine Bowles had an initial plan to reduce the deficit by $4 trillion through revenue enhancements and spending cuts. Why $4 trillion? That was the minimal amount Bowles believes that the deficit needs to be reduced in order to stabilize the debt. “We didn’t just make up the $4 trillion,” Bowles declared to ensure the audience that such a large amount was sensibly calculated. However in the effort to help the economy recover, there are consequences that the Fiscal Commission is carefully attempting to evade. The overall goal is to boldly address the budget deficit, spending and taxes without causing permanent damage to the citizens.

Erskine Bowles’s Policy Objectives and My Opinions on their Feasibility

Avoid Shortsighted, Harmful and/or Impulsive Budgeting Decisions 
Erskine bluntly stated that they didn’t want to do anything stupid and they didn't want to disrupt a fragile economic recovery. The economic recovery has been stunted for a variety of reasons. Erskine noted that growth will not come from customer spending, since they are burdened by their own personal debt and economic issues. If the interest rates were set back to normal, this would further restrict spending. Businesses are usually a source of economic growth, however businesses are saving up capital and many are too afraid to spend. The government is the only option that is left. However state governments are cutting their budget and taking extreme measures to reduce debt by laying off employees. We can’t depend on countries for loans or to generate demand for our products because economic powerhouses such as Europe and Japan are struggling also. Due to worries about disrupting the little demand that customers, business and governments currently have, the Fiscal Commission decided to wait until 2013 to make the big cuts and return to 2008 spending levels. They were worried about stunting a fragile economic recovery if big cuts were made in 2011 and 2012.
Opinion: Although I believe that it’s prudent to not put a strain on an already stressed economy, it’s too optimistic to believe that the economy will automatically improve by 2013. The economy could in fact experience a further decline, human nature is unpredictable and the economy often mirrors human behavior. Therefore nothing is for sure and we can’t forget that emergencies can occur at any time.

Preserve Safety Nets

Erskine “didn’t want to hurt the truly disadvantaged. The commission didn’t want to hurt lower-income people when making cuts. Therefore they didn’t encourage cutting income support programs such as food stamps and workers compensation. Social Security monthly checks were raised by 1% for those between the ages of 81 to 86. To balance out the increase, Erskine recommended raising the eligibility age for Social Security by 1 year in 40 years. 
Opinion: I believe this is a very honorable goal, neglecting the disadvantaged does not result in a country with a high standard of living. There has to be a middle ground between being overtly suspicious of people in poor circumstances and unconsciously rewarding negative behavior. There are also instances of funds being given to people that are not in need and those that are truly in need not having access to help. Then the question remains, Do people know how to effectively manage and use the resources and funds? Also we want to remove obstacles to economic development because there are so many people that are truly disadvantaged that throwing money at the problem will deepen the budget issues. It would be more effective to investigate the underlying factors that are restraining social and economic growth such as unemployment, education disparities, overbearing college loans, wage gap, sky rocketing health care costs, mental health issues, housing costs, etc instead of ignoring these issues and implementing budget draining programs. Eventually economists will declare that these programs are a burden, so before this happens we need to be sure that everyone can equally provide their own safety net.

Balance the International Threats to Our Security and the Deficit’s Threat to Our Economy
We obviously want to remain safe and secure, however Bowles cited debt as the true national threat. He reiterated the debt problem because it has the potential to drain our resources and reserves. The debt will restrain educational, economic, social, technological growth which could result in overall decline. America apparently spends more on national security than the next 14 countries combined, therefore the recommendation was to make major cuts in the defense budget. He acknowledged that we have a treaty to protect Taiwan if invaded by the Chinese; however that we would have to borrow from the Chinese before we do it, he joked. “I believe that America should not be the world’s policeman.”
Opinion: Once we publicly announce that we are cutting back on defense because we are nearly bankrupt and not voluntarily, then we may immediately become a target. Also military spending is propping up many cities economically. What will happen once the government stops spending in those areas? What will happen once we lay off soldiers or reduce recruitment -- many who are low-income and are desperately working towards a higher standard of living? Will we just have a bunch of young men that are unemployed? Also are other countries reporting their military spending honestly? I think that the overall goal should be to prevent waste and investigate the government’s relationship with unethical military industrial complexes that exploit federal funds.

Remain Competitive yet Fiscally Responsible
America needs to remain competitive in a global economy by continuing to support education, infrastructure and research. However Bowles reminds us that, “we have to do it in a fiscally responsible manner.” For example, there are 82 programs to improve the quality of teacher programs. But do we need all those programs. The North Carolina University System has invested in billions of dollars’ worth of research, but are each of the research programs of high value?, Bowles asked.
Opinion: I do disagree with the statement about research because college students need to do smaller projects in order to gain experience and inspiration. Even if they may not seem important, the small research projects are stepping stones to higher value research projects. With practice, we can save money in the end because the high value research projects will be executed more expertly. It’s like saying that toys are a waste of money even though they promote creativity and help children strive for more complex activity. With less and only prestigious research projects, there will fewer opportunities for everyone which will block out people that have potential. I do agree with his statement about the overlapping programs. We need to put pressure on programs to have verifiable results and fulfill their purpose to the greatest extent possible. There are so many ineffectual programs that do not take their roles seriously.

Tax Reforms to Increase Revenue
Bowles informed the audience that tax reforms are necessary. Currently we have 1.1 trillion in deductions and credits, many which were derived by special interests. Bowles would like to get rid of all the deductions and credits as a less noticeable method to increase our revenue. 
Opinion: I believe this could be an effective policy solution. Since it is probably the top income brackets that are using the deductions and credits. this prevents the money from circulating properly. Deductions and credits also encourage tax fraud. However we would have to put in oversight to make sure that government spends the extra revenue correctly. Also will the lack of deductions prevent people from spending and branching out financially? Deductions and credits may encourage business growth. For example, energy efficient credits could encourage people to invest in solar power, wind energy, etc which consequently creates more green jobs while cleaning up our environment. If the government suppresses spending that means less incentive for innovation, job creation and a slower recovery. I think it would be wise to save important deductions while removing deductions that are taken advantage of.

Make Sacrifices
Lastly but not least, Bowles wants to get serious about spending cuts. Currently the negotiations from the default "scare" resulted in only cuts $40 billion in cuts over 10 years; however we spend 3.8 trillion annually. This is only a measly 1% cut per year. He suggests that we need to address entitlement programs such as Medicare, Social Security and Medicaid. 
Opinion: Balancing out this goal and the goal to preserve safety nets will be difficult.Also the plans to cut programs aren’t as clear cut as they seem because there are unforeseen consequences for every action. Instead of just making rash cuts, we need to first investigate to see the waste clearly. Then we can make reasonable decisions on the programs to cut.

Conclusion
Bowles has tried to negotiate $4 trillion in cuts over a period in 10 years, which adjusting for inflation will be $2.5 trillion. The default fiasco, in his view, was “pitiful” and an “embarrassment” to the country and the debt is hurting our global reputation. However Bowles is optimistic to see how the default controversy motivated Congress. I believe that the current fiscal crisis is purely psychological and social. America needs to make constructive cultural changes. Our values and mentality towards money needs to change. Can we blame the "bankers" or "1%" for fully embracing the culture of greed, materialism and selfishness? We seem to forget how harshly Americans look down on so-called failures and how much we idealize the rich even if they are rich by unethical means. Naturally this will cause some people to attempt to attain success by any means necessary. Why do we have so many entitlement programs? Shouldn't people be helping one another directly? People are maintaining the status quo, as others are being buried beneath almost like when the ancient workers were buried as the Great Pyramids and the Great Wall of China were being built. We are working towards our own demise.

It will take more than protesting to solve these issues. Bowles states that it is structural issues that are causing a slow recovery, I agree and I’ve shared the same sentiment for a while. It’s the wrong attitude, faulty habits, immoral behavior, apathy, political trickery and poor policy that prolonged the "Great Recession". However I do understand that America is still a relatively new country; therefore it may take some time for us to get it right. Bowles and rest of the team have been only able to convince Obama and Congress to cut $1 trillion. Unfortunately he didn’t have to opportunity to work with Obama as long and as closely as Clinton, therefore the trust factor was lacking. “I’m disappointed. I wanted us to do something bold,” Bowles said. The goal is to "build our fiscal house out of bricks, not out of straw." We need to work together to encourage our Congress members to put aside politics. The people need to work together also and not just depend on government or large corporations.

References:
  • La Monica, Paul R. (2011). CNN Money. Not a Recession. But Who Cares?
  • Goodman, Peter S. (2008). The New York Times. Low Spending is Taking a Toll on Economy. 
  • Yang, Lynn Jia (2010). The Washington Post. Companies Pile Up Cash But Remain Hesitant to Add Jobs. 
  • Strategy Sessions (2011). CNN Money.  The Great Government Job Purge. 
  • CNN Money Reports (2011). CNN Money. Why I Need Government Assistance. 
  • Bradford, Harry (2011). The Huffington Post. 'We Are The 99 Percent': Stories of The Great Recession's Victims (Photos). 
  • Riley, Charles (2011). CNN Money. Pentagon's Nightmare: $1 Trillion in Cuts. 
  • M. Dardia, K. F. McCarthy, J. Malkin, and G. Vernez (1996). Rand Corporation. The Effects of Military Closures on Local Community: A Short-Term Perspective. 
  • Johnson, Robert (2011). Business Insider. What the Money Spent at in Iraq and Afghanistan Could have Bought at Home in America. 
  • Riley, Charles (2011). CNN Money. Millions Mistakenly Take Education Tax Credits. 
  • Sahadi, Jeanne (2011). CNN Money. How Debt Committee Could Fake its Way to $1.2 Trillion.


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