How to Solve the Fiscal Cliff

Current discussions concerning the fiscal cliff are much like an argument over which type of bullet one should shoot him/herself with. Here’s a common sense reality check on what the framework for a solution needs to look like:

  1. Spending has to fall. It should always trail revenue. It’s that simple.
  2. Taxing the rich is not the answer. Flat taxes for specific programs and user fees are the answer. If programs are too expensive when allocated as a flat tax or user fees across all citizens that will benefit, then they are too expensive for society.
  3. Lobbies need to be neutralized since they are the major driver of out of control spending. There will be repeats of the fiscal cliff over and over again as long as lobbies—corporate, labour and social causes—control politicians. The free riding from the left and the right each need to be slashed.
  4. The size of the permanent government needs to be slashed, and services don’t need to be cut while doing so, since many government roles can be converted from ‘careers’ to ‘workfare’ opportunities.
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Is Give & Take Economics Left or Right Leaning?

As people try to place Give & Take Economics into a familiar category they typically first ask whether it is left or right leaning. On one hand it seems very right leaning, due to a focus on free interaction, both in markets and in political participation. On the other hand it seems very left leaning, with a strong focus on obligation of the individual to society and the will of the majority. It is both—not a passive moderate position—but an assertive balancing of both ends of the spectrum. Like most effective solutions in life, Give & Take Economics is yin and yang. It leverages the best of capitalist democracy and socialist democracy.

The best way to illustrate is to highlight by example where the theory falls on major economic, political and generally social issues. Here are a few summarized. They’re analyzed in other posts.

Right-Leaning

  • Balanced government budgets and nothing else.
  • Balanced international trade. If not balanced, don’t trade.
  • Benefits-driven versus revenue-driven taxes. Taxes aren’t tied to income or consumption, but levied as flat taxes and user fees across citizens that benefit toward a certain purpose.
  • Direct democracy by citizens with electronic issue-by-issue voting. No professional politicians and very few career bureaucrats exist.
  • Free markets and libertarian rights for individuals are vital and must be protected against significant breaches.
  • Tough legal sanctions tied to crime, including white-collar crime. Today’s approach of punishing only a few scapegoat ‘fall guys’ must end. It hides underlying systematic manipulation of social institutions – and that’s on purpose!

Left Leaning

  • A significant social safety net such as employment insurance, social security and health care is mandatory and vital.
  • Completely stop printing money and eliminate monetary and fiscal policy.
  • Those unable to pay flat taxes and who need social support can contribute time and labour within the civil service. Workfare replaces welfare and many government careers.
  • Asset inflation ‘bubblation’ is as bad as consumer price inflation, being a tax on the poor and middle-class and significantly increasing the risk levels they face through volatility.
  • Every citizen bears an equal allocated share of social obligations, including direct costs of programs as well as a prorated share of risk-sharing schemes.
  • Citizens should simply not be allowed to profit from any activity that hurts society.
  • The will of the democratic majority must take overall precedence in the functioning of society.
  • Oligopoly industries significantly hurt overall societal welfare.
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How to REALLY fix the Economy in 8 Steps

Here are the eight highest priority actions required to get the world economy back on track, with a stable foundation and consistent long-term consistent growth. These actions effectively couple personal total cost (PTC) and personal total benefit (PTB) as presented in Give & Take Economics theory.

8 Primary Actions Required

  1. Balance government budgets: These must be a small proportion of national wealth and include a significant surplus cushion. This is the most urgent issue to tackle as the entire Western world. Debt and deficits are ALWAYS a spending problem, as spending must always be brought in line with revenue.
  2. Balance international trade: Trade must be explicitly reduced with offenders, because trade flows is the most significant determinant of relative long-term wealth and power. This is also of critical urgency from the perspective of the West, as it erodes its own political power.
  3. Stop printing money: This does nothing more than cause inflation (or asset bubblation), representing a large effective tax on the middle-class. As the developed world sits in a crisis of living beyond it’s means with massive debt, the solution our leaders are following is to do more of it, by printing massive amounts of money and further deteriorating our wealth.
  4. Enact benefits-driven vs. revenue-driven taxes: Core taxes must be flat and only collected on a transparent specific need basis (ex. If government pensions are to be increased, a tax must be issued for that). Costs (period taxes or user fees) need to be allocated to those that benefit as closely as possible). ANY other approach just creates a confusing government slush fund to be allocated across lobby groups. Citizens should be able to pay taxes in currency or in hours of service working for government.
  5. Revise the legal system: Today’s legal systems rarely tie PTC to PTB. Too often leaders of large institutions, whether Wall Street banks or government, are able to gain PTB without bearing any PTC. Gains are privatized and losses are socialized. Compensation and responsibility must follow individuals accountable for decisions and actions.
  6. Ensure free interactions (markets/government) with accountability: Free markets get all the attention, but markets and government are both just coordination mechanisms. They are both faltering today due to a lack of transparency that protects free riders. All social interaction systems must maximize individual freedom, provide meaningful access and enforce a level of social obligation determined by the majority.
  7. Reduce the number of professional politicians and bureaucrats: Professional politicians need to be replaced by direct citizen participation. The representative government approach does nothing but disconnect people from the issues. Many government bureaucrat jobs should also not be ‘careers’, but rather workfare programs. This approach enlists citizens in service to society by coupling PTB and PTC.
  8. Transition to direct government: Citizens have to dig deeper than election sound bites to understand issues. People need to be directly educated and involved on major political and economic issues. Today’s democracies have outsourced decision-making and most citizens vote solely based on broad ideological concepts, not practical approaches. Gridlock ensues. Referendums need to be held on most issues through online voting. Majority decisions need to be implemented, not providing for endless challenges from minority positions.

2 Primary Barriers to Overcome

There are two barriers to such change, yet each requires tremendous persistence to overcome. The first is the current level of rampant vested interests, where existing intermediaries (government, corporate lobbies, unions, corporations, social causes etc. — left AND right) benefit at the expense of others. The second created the first; it is the disengagement of the public—you and I—which has became predominantly complacent and outsourced political decision-making.

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