PRAGMATISM VERSUS IDEOLOGY

I just can’t stand on the sidelines and I have to jump in on the discussion about the Fiscal Cliff and the

need to bring the federal deficits under control.

At the time of this writing there is no certainty at all that the Beltway will come up with the collective

political will to avoid the Fiscal Cliff that is looming at the end of the year. In fact there are voices on the

Democratic side saying that a solution might be easier to find if we allow the negatives implied in the

Fiscal Cliff to first take their course after January 1. “Consequences (in the credit‐ and stock markets) be

damned, it is all about gaining the upper hand in the political tussle”.

The monstrous landscape feature that is called the Fiscal Cliff was created deliberately so ugly that the

assumption was that Congress would have no choice but to find a way to address the deficits and the

national debt in a more rational and balanced way than the expiration of the Bush tax cuts and

sequestration.

Remember that the Fiscal Cliff was put in place after efforts to pave the way using a “Super Committee”

of prominent Republican and Democratic legislators had failed to provide a path forward. The Super

Committee (consisting of 6 Republicans and 6 Democrats) was asked to develop a deficit reduction plan

over 10 years in addition to the $917 billion of cuts mandated by the Budget Control Act of 2011, but

was unable to find consensus.

We are now more than a year later and no closer to a solution.

Of course one can expect a degree of posturing, maneuvering and bluffing in the negotiations that are

now taking place, in public and in private, between representatives of the two parties and the White

House, but there is real danger in approaching these negotiations from an ideological perspective. The

danger is that categorically stating that “entitlements are off the table” or that “tax rate increases for

high income earners are out of bounds” raises expectations in the public that almost certainly cannot be

sustained. Everything that makes good fiscal and economic sense should be on the table. That’s why

Grover Norquist’s tax pledge is so damaging.

What is needed now is a pragmatic approach from the White House and the Congress to the solution of

one pressing problem: “How to begin to bend the curve on the increase in the national debt in a way

that helps the economy grow.” Because, let’s face it, if we don’t get back to a healthy growth of our

economy, then there is nothing but pain in the future; pain of a kind now experienced by Greece,

Ireland, Portugal and Spain.

Think tanks have been active in offering frameworks for the kind of “grand bargain” that is required.

Prominent amongst them is “Third Way” publishing a discussion paper titled “The Bargain”, written by

Jim Kessler, Jon Cowan and Ed Gerwin. This document spells out a practical guideline for putting

America back on a path of sustainable growth at an average 3.3% rate that has brought prosperity to the

country between the end of World War II and the start of the 2007/2008 recession.

The Bargain advocates 7 areas of political action:

1. Re‐balance the Budget

2. Become an export giant

3. Reform corporate taxes and business regulations

4. Boost the productivity and educational attainment of the American workforce

5. Become a global magnet for talent

6. Improve infrastructure

7. Spur breakthrough innovation

There is a legitimate discussion about the desirable level of national debt. Borrowing is justified when it

is a means to spurring economic growth, paying for disastrous events like unsolicited wars or natural

disasters and for infrastructure investments. Most households find it desirable to take on debt at certain

times when expenditures exceed current income or to invest in real assets like a home. But households

get worried when repayment of the debt moves beyond their capacity for the future.

The national debt has exploded during the last 22 years from $4 trillion in 1990 to over $16 trillion right

now. In each of the last four years we have added more than $1 trillion to the debt. As a percentage of

GDP the debt has also increased, particularly under the administration of Barack Obama. While the debt

has moved over time in a range from 56% of GDP in 1985 to 81% in 1996, it has now peaked at about

115% of GDP and is projected to go higher from there. In other words our national debt is now larger

than the size of our economy.

It seems to me that the task at hand is design and codify a strategy and a plan that will over a

reasonable amount of time (like 5‐10 years) bring the national debt back to within a range of 50‐80% of

GDP by stimulating economic growth, while reducing government spending. Thereafter the task should

be to keep the national debt in that range, reaching the lower limit in good times and the higher limit in

times of economic distress or national emergencies.

The previously quoted article “The Bargain” provides a plausible pathway for such strategy. I would add

to the 7 steps that article outlines:

8. Complete tax overhaul, including flattening of tax rates, simplification and possibly introduction

of a value added tax on consumption with low rates for necessities and high rates for luxury

items and products that threaten public health like tobacco, alcohol, soft drinks and snacks.

9. Tort reform.

10. Achieve energy independence from sources other than North America.

These ten steps demonstrate that there is a legitimate role for the government to play in stimulating

economic growth. In everything the executive branch and the legislative branch will be prescribing, the

question should be asked “will this promote economic growth” and if the answer is “no” there should be

a compelling need of another kind (like national security, public safety or environmental protection) to

move forward.

Government works best when it is an “enabler” rather than a “doer”. Enabling is generally a lot less

expensive than doing. Herein lies another avenue towards reduced government spending.

It is time for our politicians to leave their ideological biases at home and get pragmatic about solving the

nations’ pressing problems.

(Frans Jager is Principal of Castnet Corp. (www.castnetcorp.net) a Business Consultant for the Green Industry and an Executive Coach. He frequently writes about matters pertaining to the Green Industry. He can be reached at

castnetcorp@gmail.com)

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