The time for consensus has passed
On March 26-27, the National Constitution Center will host an interactive, interdisciplinary forum and workshop titled “Can We Talk? A Conversation about Civility and Democracy in America.”
Below is a response to last week’s question: “What can we learn from the budget showdown in Wisconsin about building the political consensus needed for long-term solutions?”
Unfortunately, this is reality when it comes to the subject of economics. The time to build a consensus ended in 2003 just prior to the massive real estate bubble blown as a result of terrible economic policy. Economics is not a partisan issue, although both sides of the aisle have made it so.
The biggest lesson to be learned from Wisconsin is that when there is no money, there is no money. This is our reality, like it or not. Partisanship has made Wisconsin into an argument over unions. This is not the real issue.
To generate revenue, the nation must be productive, or generate GDP. Because our economy was built on what amounts to a giant Ponzi scheme that relied upon private sector spending on consumer goods (like houses, cars and iPods), which accelerated in 2003, and collapsed in 2007, right now, the majority of our ‘GDP’ comes from deficit spending .
Quite frankly, this is the only thing that is keeping us from recognizing a full-on economic depression. If you raise taxes, you subtract directly from what is left of private spending. Refuse to raise taxes and the government is forced to continue to borrow. For each cut in spending there is a corresponding cut in GDP. The current House spending bill proposes to cut $61 billion from the budget, which would decrease GDP by 1.5 to 2 percentage points in the next quarter according to Goldman Sachs.
As a nation we took in approximately $2 trillion in federal tax revenues (source:IRS 2010). We spent almost $4 trillion. To spend only what was taken in, you would have to decrease government spending by 42%, or $1.7 trillion for calendar 2010. Removing that would result in a decrease in GDP of 50% ! (The definition of a depression is a contraction in GDP of 10% or more year on year.) This is the mathematical fact of our situation and I am not the only one who realizes this. Goldman Sachs came out with a report on February 23, 2010 that says much the same thing.
The United States no longer produces anything but debt. You can’t get out of debt when it is all you produce. We’re stuck in a box that is slowly being crushed. The only thing we need to have a consensus about is the numbers on paper and the reality of our situation.
Stephanie Jasky is the Founder and Director of FedUpUSA.org.