There’s a term that Croupiers use for the basic mistakes that gamblers make: it’s called “betting on black.” At the roulette wheel you’ll find a chart displaying the last twenty spins of the wheel and it will always show a majority of spins landing on red. The casino shows you this chart to “inform” you of what has been happening with the wheel, but really they are showing you this because they want you to be a certain way. The house isn’t stupid, in fact they are far smarter than you and the only way you win money at a casino is if you accept that the house is indeed much smarter and well-informed about gambling than you could ever hope to be. That’s why they show you the board of previous spins on the roulette wheel. They know that a majority of gamblers will see that the previous spins have gone on red and that they will then see this as their “opportunity” to win on black. Betting on black means to bet against the house because you want to beat the house not win some money. It’s a personal thing that the house can do to make you go against something that is so obvious no sane person would bet against it. Think about what I’ve just said. The last twenty spins always show a majority of spins going red, but more gamblers put their money on black than put their money on red. They’re betting against the house because they want to be right and they want to prove to the house that they are wrong. It’s a ridiculously stupid bet, but as it turns out in gambling every bet you make is a stupid one until you win.
For those of you following at home you’ve noticed that I’ve kept my hands off of this whole fiscal cliff mess and it’s not that I don’t have an opinion about it, of course like just about anything else in life I have an opinion about it. The problem with the fiscal cliff is that everyone is arguing about issues that aren’t the issue right now. Will it kill the economy if tax rates go up on the rich by 2%? Of course not. However tax hikes combined with major spending cuts will take a sufficiently large portion of money out of the economy and would in all likelihood trigger at least one quarter of negative growth. For a recession to hit it takes two quarters of negative growth and I think it’s pretty hard to forecast how the economy is going to do in a matter of weeks, so anyone who says they can tell you how the economy is going to do in six months either doesn’t know what they’re talking about or has an inflated opinion of their prediction skills. In either event it makes sense to avoid listening to these people.
The real problem that the fiscal cliff creates is that introduces austerity measures into an economy that needs more stimulus. Austerity is something that you do when you’re dealing with out of control inflation, a budget surplus, and an economy that is near full employment. If you look at our economy right now you’ll notice that none of these issues actually effects our economy at this point in time and likely won’t effect us for a long time to come. That’s because in order to have inflation you need to have a surplus of money floating around and right now consumer spending isn’t nearly high enough for something like that to happen. We’re also nowhere near a budget surplus, something Congressional Republicans seem to be conveniently forgetting and we have a serious problem with our labor markets. All of this would tell a rational human being that we need to inject more stimulus into the economy whether that means more quantative easing paired with infrastructure spending and pro-growth federal jobs programs or payroll tax cuts for new workers, it’s clear we need to do something and with every positive job report we get it seems to encourage our leaders to do all the wrong things from a policy perspective. Republicans continue to push for austerity measures when they’re not required and Democrats continue to push for tax cuts for people who don’t need them. These are not smart policy solutions.
Now, I know it must seem like anathema to my Democratic colleagues to suggest that we shouldn’t cut taxes for the middle class, but we really shouldn’t. The easiest way to solve our long term fiscal problem would be to let all of the Bush tax cuts expire which would lead to a balanced budget in four to five years. We have a revenue problem not a spending problem. The problem with raising taxes on the middle class is that it’s bad politics, but cutting taxes for the middle class makes for bad policy because the middle class represents the single largest group of taxpayers. State legislators and Governors would also point out that if the federal government raised taxes they would in all likelihood have to cut taxes in some area at the state level to make up for the money that is now being allocated towards an increased tax bill. It’s a tricky situation, but it’s one that the Republicans thought was a great idea just one year ago.
So here we are sitting on the edge of the fiscal cliff, tangling our feet over the edge and waiting for some responsible adult to come by and tell us to stop screwing around. This reminds me of that scene from the movie “Nine Months” with Hugh Grant and Julianne Moore. Hugh Grant has just bought this awesome house that he thinks Julianne Moore will love, but when he takes her to the house to show it to her she freaks out. Hugh Grant being a typical guy took a look at the inside of the house and said: “man this is nice” and decided to buy the house. But what he wasn’t thinking about was the kid that he was going to be having with Julianne Moore and the problem he has with this house is that there is a cliff in the backyard. Julianne Moore responds to seeing the house with an emphatic: “what am I supposed to say when the kids are outside? Oh, don’t worry about the kids honey, they’re just playing on the cliff?” It’s a funny scene because we as an audience realize just how stupid it was for Hugh Grant not to think that part through, but for most Americans right now peering off the edge of the cliff in the house that we all bought in the last election we’re reacting like Julianne Moore and yelling at our Congressmen for buying a house on a cliff. It makes absolutely no sense and should be almost comical because of it’s absurdity. But we all are going to be impacted by what happens with this fiscal cliff so I suppose it is not so funny to us anymore, is it?
This brings me back to what I was talking about earlier with casinos and the urge for gamblers to bet on black. Everyone is sitting around saying: “if we just raise taxes on the rich, we’ll be fine” when in reality that isn’t the case at all. As Ezra Klein points out:
Projected deficits are driven by two factors: health-care costs and old people. The coming years will bring more of both. Today, the elderly make up 13 percent of the U.S. population. By 2050, they’re expected to be 20 percent. There’s no way that the tax receipts of the 1980s will support the demographics of the 2020s or 2030s.
We simply can’t afford to tax at the rate we want to if we want to keep spending the money that we need to.
As usual in Washington they are debating issues that have nothing to do with the actual problem. This is a typical scenario for Congress, but it’s one that is getting rather old at this point. We can’t sustain the spending we need with the revenues we have and that means we have to cut programs or increase taxes or both. Preferably we’d cut defense spending and raise taxes, but we’d do so over a period of about five years so that people could plan ahead for the change in policy. Given the Republican intractability on issues related to fiduciary responsibility it is unlikely that their draconian position on issues related to economic policy will change in the foreseeable future. However, Democrats don’t need to let Republicans dictate the rules of the game. They can vote to end the sequester on domestic spending and let the sequester on defense spending remain in tact. They can also refuse to vote for another extension of the Bush tax cuts which would balance our budget in a matter of years not decades. In short, every financial problem the federal government has is incredibly solvable, but it requires them to put their money on red and as we all know Congress is an institution that loves living by their own logic and their logic tells them to be that crazy gambler we all know and will in all likelihood lead them to continue to bet on black.