The Fiscal Cliff: One Small Battle in a Larger War

In time, the stand-off over the US Government fiscal cliff may well go down as just one part of an ongoing struggle between reforming social democrats and pro-business deregulators over the role of government. Just one small battle in a larger war.

The fiscal cliff itself served as the date for automatic cuts and tax hikes to set in, should a better proposal not arrive on the table (BBC, 2013). Carving out such a proposal became necessary when the economic problems began to pile-up: propelled by slow growth, and made dangerous by the unwillingness or inability of the United States Congress to raise its debt ceiling (the cap on government borrowing set by Congress) to cover the subsequently rising deficit.

The deal to solve these worries, if 'solve' is in fact the right term (Moore, 2013), saw the main winners appear to be the wealthy (but not the super rich) earning up to $400,000 a year who won't see a major tax rise. Meanwhile a number of major issues such as defence spending were postponed (Daley, 2013).

And these are far from the first postponements. The fiscal cliff itself is the result of an inability to settle the disconnect between what the federal government is expected to provide and what its citizens are willing and able to raise in revenue. This conflict between revenue and expectation was been brought to a head by the US Government approaching and hitting the debt ceiling - which means no more borrowing to make up for short falls in revenue.

With taxes despised and borrowing capped, the public sector seems to be hemmed in - with far less scope for 'innovative fundraising' than their private sector fellows. It is interesting that while the private sector makes a habit of turning limitations into barriers that it then 'circumvents or transcends'  (Harvey, 2010), the public sector is not afforded the same opportunities.

This creates real difficulties when a central bank racks sufficiently massive debts, such as many nations have in bailing out big banks and big business. A large part of the massive weight of debt upon the US Federal Government has been the cost of efforts to stimulate the economy through quantitative easing: the investment, from the public chest, large amounts of capital into private enterprises in order to stimulate lending and employment (FactCheck, 2012). Yet, despite absorbing government handouts with little change to paucity of lending and high unemployment that act as anchors slowing growth, it is not the private but the public sector that is once more taking a hammering over it.

Responding to these issues isn't made easier by decision making processes that appear to be broken. Which is where the fiscal cliff debate fits into the larger conflict. How much should people, through their democratic institutions, seek to interfere in the market place? A lack of interference by government has led to a US economy much more 'dynamic' than its European counterpart - more quick to react to market changes with bigger money to be made - yet it comes at the cost of the greater stability offered by European social market economies.

As the 2012 US Presidential Election showed, people want the security offered by public sector involvement in the provision of essential services like healthcare and welfare. The debate people want to hear is how we make it fair, how we make it affordable, and what we have to make choices between with our finite budgets.

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References:
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+ BBC's 'Q&A: The US fiscal cliff'; 2 January 2013.

+ Heidi Moore's 'Congress's manufactured non-solution to its manufactured fiscal cliff crisis'; in The Guardian; 1 January 2013.

+ FactCheck's 'Obama’s Deficit Dodge'; 28 September 2012.

+David Harvey's 'Crises in Capitalism'; RSA Animate; 28 June 2010.