"Obama is fighting to grow the economy from the middle out, not the top down." Strangely enough, this statement is from the website of the President, and the middle-out economy is a notion that he has talked about since the campaign.
So what does it mean?
Well, here is a rough translation: President Obama is fighting for an economy that is driven by demand from the majority of Americans. That sounds nice on the surface, but you have to delve deeper into the weeds to fully understand this notion. What it really means is, President Obama wants an economy based disproportionately on consumerism, while eschewing long-term investment and production, and with that belief, he is advocating the continuation a flawed illusion of prosperity deeply rooted in the culture of debt.
The truth is that this is not a new practice; his predecessor trumpeted on about the need for Americans to spend at the consumer level, while his government borrowed insatiably to fund an expansive bureaucracies and two wars. All of this consumption was done, of course, at the expense of mounting levels of debt, which, at $27 trillion, became our single greatest export from 2001 to 2008. It continued on gleefully, until 2007 and 2008, when the debt fueling that consumer consumption began to topple over in the real-estate sector and threatened the whole of financial markets.
Today, it seems that no one has learned their lesson from the consumption bubble of the 2000's and all that unnecessary indebtedness, and it would seem that the least learned are our President and members of our Congress. The exercise that was the Fiscal Cliff has proven this to be true. Whereas our leaders were to come together to create a grand bargain that would originally have generated new revenue (in the form of taxes) and pared back the spending by our government, they failed, and instead, we ended up securing less revenue than anticipated ($620 billion over ten years) and $4 trillion in new deficit spending over ten years that no one saw coming, all while setting ourselves up for a fresh series of fights over spending that could make this one look like a schoolyard brawl.
Last night, while conceding that the deficit was too high and there was room for reform, President Obama said this: "I will not have another debate with this Congress over whether or not they should pay the bills that they has already racked up..." But he has to, if only because the United States government is spending the equivalent of 25% of its GDP each year, while only taking in 15% of GDP in revenue. That means, we, like any household or company living beyond its means, must have this conversation and reassess our priorities. The fact is that, with federal spending at more than $1 trillion per annum, we are doling out approximately $300 billion per month, and borrowing $120 billion per month of that total amount just to get away with this rapacious mismanagement. Now, as we approach another major fight over the debt ceiling, President Obama is fairly mistaken, if he thinks that we can continue on this spending trajectory without consequences, particularly if his assumption is that such government spending is helpful to the creation of consumption with its reallocations to the already-squeezed middle and working classes. Simply transferring wealth and putting new debt on the balance sheet of government no more helps its citizenry than when they themselves go out and borrow large and troubling amounts of money. In the end, debt is debt, and there are consequences and costs for loading up too heavily on borrowing.
If the economy could be grown from the middle class outward, as President Obama said he'd like to see, then that middle class would be utilizing its capital, and even its debt, to make investments that spur long-term vitality. But it does not do that. For the most part, the middle class, as a segment, are net spenders with a declining income level (particularly relative to real inflation) and mounting levels of fresh debt (saving only 3.6% of its disposal income). This is not meant to be a dig on anyone's lifestyle; it is just the statistical truth. And this means that the middle-out economy proffered by the President is one that cannot sustain. We would be better off showing deference to investment, to real supply-side economics, and to a culture of innovation and production that, yes, ultimately employs the middle class and makes possible real economic development and prosperity, not an illusion of it.
As I conclude this, I implore each of you to look beyond the sound bites and see the truth. In order to perserve the integrity of our government and reinvigorate our economy, we cannot take a thoughtless path toward overwhelming indebtedness.
If nothing else, political crises like the Fiscal Cliff or the Fiscal Abyss, which often get characterized incorrectly by an ill-informed press, offer us a genuine opportunity. We have an opportunity to dial back our mistakes and avoid doing more harm than good. So far, our leaders did not understand with the Fiscal Cliff, but with the challenges coming in the next few weeks, maybe we can change that. They must be urged to do what is right (if, yes, somewhat immediately painful) for our country. And that said, we now know that the only way this will happen properly is if we, the people, (1) adopt a willingness to be more fiscally literate, and (2) become more involved in the process of impressing upon them, the leadership, a need for fiscal sanity.
~Written by G. Harrell
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