Maria, Tony, and the Debtside Story

As the deficit version of the West Side Story plays out in Washington I wanted to make sure I got my frog in the race. Right now there are two things stuck in my JD (I don’t know what a craw is or it would be stuck there.)

The first is this quote I got from Bloomberg.com after the President’s speech last week.

President Barack Obama cast his disagreements with Republicans in deficit negotiations as a struggle between the interests of hedge-fund managers and corporate jet owners against those of the elderly and college students as he pressed congressional leaders to accept tax increases.

The second has to do with a Congressional divide that would only take second place to the gang wars between the Jets and the Sharks. Who can forget the words, “When you’re a Jet you’re a Jet all the way from your first cigarette to your last dying day… When you’re a jet, you’re the swingin’est thing: Little boy you’re a man; little man you’re a king. Is it possible that Democrats or the Republics could be any stupid-er than these guys?

Keep in mind that the Westside Story is a musical. But apparently it took the death of Tony for Maria and the other idiots to realize that they had to change their habits – like stop hating and killing each other.

So let’s pursue this second point a bit. I will get back to the first one shortly. The Democrats stare into the camera with that beagle look and say that to be fair any solution to a huge and growing debt must involve tax increases. If the Rs will not cotton to major tax increases, then the Ds are going to take their balls home. The Rs look into a camera on another network which will remain nameless since Fox swears it is not a tool of the R party. The Rs look earnest and caring when they explain that an increase in taxes will utterly destroy the universe as well as the US economy.

Now back to the first point. Will someone please get President Obama off the golf course and explain to him that sometimes the interests of the elderly, college students, hedge-fund managers, and corporate jet owners coincide? EVERYTHING is not a gang war between the many groups that comprise our nice country. Maybe the tall guy on the basketball team makes more money than the short guy – but knocking 2 inches off the biggest guy and giving it to the shortest one is not really going to produce a winning record.

Why does the President, when given the microphone and the attention of the US public, have to grovel in this class-war crap? Why does he think he increases his popularity among voters when he plays the Jets/Sharks card? What matters for the poor, the young, the old and for Hollywood movie stars is that the US economy grows. While Keynesians and others might bicker about the best short-run macro models and policies, there is hardly any debate about the long-run model which says that three things cause growth – labor employed, capital employed, and productivity.

Enough about the President. Let’s get to the Rs and Ds. They just don’t get it. The Rs play to the Jets and the Ds to the Sharks. That’s it. End of story. I know the Rs and Ds have seen Westside Story and I know they know the ending. So why do they want Tony to die before everyone becomes friends and they live happily ever after? Can we not learn anything from musicals? I guess not (I learned a lot from Hair and from Buddy, but that’s a different topic for a later posting.)

If you are a good R or a passionate D you are ready to beat me with my own JD bottle. You just know you are right and the other guy is wrong. Davidson is a silly compromiser who just doesn’t get it. The R tells me that tax increases are just going to send the wrong message and before you know it, spending will resume its usual path and we will be back in this pickle again. The D tells me how unfair it is to keep helping the rich when there are so many people suffering. You know what – you are both right! But dudes (and dudesses) – you gotta put first things first.

You are playing with a wet firecracker. You don’t know when it is going to go off but if you keep playing with it – it is going to blow us all up! The Greeks were in the streets protesting austerity and many Americans will be on US avenues too. But finally the Greek government showed some real leadership – something that is sadly lacking in America. I am not going to quote deficit/debt numbers because you see them too often. But if you think the deficit/debt future looks bad now please understand that the scarey numbers you are seeing are already part of an optimistic scenario that assumes low interest rates and relatively strong economic growth. More reasonable estimates of future interest rates and GDP growth suggest that debt is even worse by multiples. We don’t seem much bothered by debt/GDP ratios of 100% but within a few years this number could exceed 150%. That’s pretty close to killing Tony.

So maybe we shouldn’t raise taxes. And maybe we shouldn’t reduce entitlements. But if our government doesn’t soon show the world that we have a plan to put our debt/deficits in order, we are going to be soon helping Maria find a new partner.  

And let me throw this out – a solution isn’t that hard to find. Taxing the rich and businesses right now is not a good idea. But that doesn’t mean we can’t legislate a plan to increase future tax revenue in the context of a major tax reform. In fact, a good deal of the tax revenue decreases we witnessed over the last two years was caused by the recession and will disappear as we grow. Recall that much of the spending increases were supposed to be temporary – designed to kick-start the economy. Well, the recession ended two years ago. Undoing those programs should not be called a spending decrease. It should be called keeping a promise. Entitlements should not be untouchable either. Too many level-headed people have shown that you can make relatively small changes to the major entitlement programs without hurting the old or the young too much.

This is all very doable. But it takes some real leaders who understand that the Jets/Sharks mentality is really stupid and self-defeating. Maybe when voters understand this, they will stop voting for these troublemakers and we can get on with solving some very challenging economic problems.