The Real Fiscal Cliff
After the phony cliff, we face the terrifying one.


Conrad Black

No sane person can have any confidence in economic policies that perpetuate this shell game and take refuge in the worm-eaten chestnut that the economy will grow out of recession. No economy will do anything of the kind that is as over-committed as this one is to the myth of the service-industry economy, in which too few people actually add value to anything. Ten percent of the economy goes to the legal cartel and 7 percent to overages in medical costs (compared with the costs in such prosperous democracies as Australia, Canada, France, Germany, Japan, and the United Kingdom, whose health-care systems are at least as good as the American one): That’s about $2 trillion that goes to these eminent learned professions, beyond what other sophisticated and prosperous democracies spend, proportionately, on the law and medicine. And there is little sign — despite the entertaining embarrassment of some big law firms, who have to short-shrift partners to pay promised starting numbers to recent law-school recruits — of any disposition to do anything about it, or to reform entitlements or get serious about health-care reform. The fiscal-cliff question is a test of public-disgust levels at the inoperability of the political system, but if the cliff is avoided, that is far from a deliverance from the impending doom that has caused the whole world to look upon the U.S. as an economic chronic-care country.

Even The Economist, which has drunk and served the Kool-Aid for a federal Europe, Obamanomics, and post-gold currencies since time immemorial, in a recent hopeful outline of what might be possible — including an increase in the age of Social Security eligibility to 67 — foresees only about a $1.1 trillion reduction in the predicted nearly $10 trillion in federal deficits in the next decade, leaving any further deficit reduction to tax increases. These could possibly be effective only if they applied to elective spending, which would reduce the penetration of America by the French and Italian luxury-goods and German and Japanese engineered-products industries — not a bad thing in itself, but it would have to be a pretty hefty tax to reduce the deficit for the decade by as much as half, which would still leave it at $500 billion per year (and this is premised on the president’s passing his own tax increases on the so-called wealthy, which is all that gets the ten-year forecast down to $10 trillion in the first place). The greatest bright spot is the continuing decline in oil imports, which should cut the current-account deficit by half and put financial pressure on the world’s most despicable (Iran) or just mischievous (Russia) states.

The answer to the Zakaria-Krauthammer exchange is that the party that addresses this problem seriously and effectively will be the growth political party of the next ten years or more. If a Damascene bolt of lightning galvanizes the incumbent president and he, even after all the false starts, makes a comprehensive compromise proposal for entitlement reform — including a radical overhaul of Obamacare, stretching out entitlements to correspond to actuarial expectations and means-testing the payments, keeping income taxes down but closing down some of the free rides and raising sales and transaction taxes on non-essential spending, and tax-incentivizing work that adds value and does not just indulge society’s self-important disdain for work in primary and secondary industry — he will be acclaimed as the transformative president he seeks to be and his party will reap the benefit for years to come.

If he holds to his indicated course, though, America will hit the wall and the Republicans will be asked to implement the program Obama should enact now. The United States is in a shocking condition. Both parties are responsible; both will be required to assist in a drastic course correction, and only the party in the White House can lead. It will happen, because it must, and the U.S., unlike much of post-war Europe, does not have a collective death wish; though careful scrutiny is sometimes necessary to be confident of that.

Conrad Black is the author of Franklin Delano Roosevelt: Champion of FreedomRichard M. Nixon: A Life in Full, and the recently published A Matter of Principle. He can be reached at[email protected].