Fiscal Cliff Notes

Some of my (somewhat well-educated) thoughts on the fiscal cliff:

1) The fiscal cliff is NOT the point at which the government runs out of money. Somehow this has become the widespread notion of what the Fiscal Cliff is, descriptively. Remember, the issuer of a currency cannot run out of that currency. The U.S. government, as issuer of the dollar cannot run out of dollars.

2) The fiscal cliff IS the point at which spending cuts kick in and tax cuts expire so that the deficit closes. That is, (G - T) becomes smaller. Every economist understands that this will hurt the economy because it contracts overall spending in the economy. GDP = C + I + G + (X-M). So if Taxes go up, our spending (Consumption and Investment) will go down and if government spending goes down, overall GDP will drop unless somehow we miraculously become a large net exporting nation.

3) Knowing this, we still think we have to shrink the deficit. I detailed this a couple of weeks ago, so I recommend reading that piece. IF we let the fiscal cliff happen, the economy will shrink quickly. If we reach a deal, the economy will sputter and will likely fall some if not a lot--it depends on the magnitude of the deal.

4) We need a larger deficit! This can be accomplished through spending increases or tax cuts, but the only way to actually shrink the deficit is to increase GDP. The private sector is still deleveraging, the foreign sector--our trading partners--is in poor shape, and so the only institution that can help is the government. Otherwise we're in for a long, slow deleveraging period--see The Great Depression. This is needless because the government has policy tools to prevent it, and it doesn't necessarily have to mean a concentration of government power.

5) What we spend money on matters! Some spending has a higher multiplier effect or employs more workers. Much spending is extremely wasteful and so wouldn't do much to help our society or our economy. All spending will benefit some more than others. Some spending is immoral. We need to make these decisions as a society in the political arena, but note these decisions have economic effects--see my most recent post on this.

6) We have a particular duty to look out for those left behind or trampled on by the system. We can do this personally and through institutions--including Churches, non-profit organizations, local governments, and the federal government. All have advantages and disadvantages, but all are needed according to the principle of subsidiarity, which is not a limiting principle (thinking of it solely as a principle that limits the size of government), but is rather a cooperative principle (thinking of it in terms of all institutions of all sizes working together to accomplish the common good).

Preferential Option for the Rich

Here is yet another great post from Catholic Moral Theology. Charles Camosy points out the apparently missing preferential option for the rich from Catholic Social Teaching which has in many places written about the preferential option for the poor. CST has, I think, danced around the 'preferential option for the rich' but certainly hasn't explicitly named any such principle as it has the preferential option for the poor. For example one can find this passage in Populorum Progressio:

We must repeat that the superfluous goods of wealthier nations ought to be placed at the disposal of poorer nations. The rule, by virtue of which in times past those nearest us were to be helped in time of need, applies today to all the needy throughout the world. And the prospering peoples will be the first to benefit from this. Continuing avarice on their part will arouse the judgment of God and the wrath of the poor, with consequences no one can foresee. If prosperous nations continue to be jealous of their own advantage alone, they will jeopardize their highest values, sacrificing the pursuit of excellence to the acquisition of possessions. We might well apply to them the parable of the rich man. His fields yielded an abundant harvest and he did not know where to store it: "But God said to him, 'Fool, this very night your soul will be demanded from you . . .' "

I agree with Charles, that there should indeed be an explicit preferential option for the rich, particularly in our wealthy society. We should at once emphasize not only the need to help those who suffer from materially poverty, but all forms of poverty, including the poverty in virtue and faith that materialism or consumerism causes as Pope John Paul II makes clear in Centesimus Annus:

Today more than ever, the Church is aware that her social message will gain credibility more immediately from the witness of actions than as a result of its internal logic and consistency. This awareness is also a source of her preferential option for the poor, which is never exclusive or discriminatory towards other groups. This option is not limited to material poverty, since it is well known that there are many other forms of poverty, especially in modern society—not only economic but cultural and spiritual poverty as well. The Church's love for the poor, which is essential for her and a part of her constant tradition, impels her to give attention to a world in which poverty is threatening to assume massive proportions in spite of technological and economic progress.

Preferential Option for the Poor(est)

A major theme in Catholic Social Teaching is the preferential option the poor. In its simplest this means giving of one's time, talent, and treasure to those with the greatest and most basic human needs. Usually this means the hungry, homeless, and ill members of our society. Most often people picture the citizens of Africa, Central America, or Southeast Asia. One can certainly find the hungry, homeless, and ill prevalent in these places, but our Bishops remind us constantly that the poorest, most defenseless members of our society are also in our own society. They are the unborn:

Abortion and euthanasia have become preeminent threats to human dignity because they directly attack life itself, the most fundamental human good and the condition for all others. They are committed against those who are weakest and most defenseless, those who are genuinely "the poorest of the poor." -- U.S. Bishops, Living the Gospel of Life

Our desire to help the poor should culminate in the eradication of abortion and euthanasia from our society. None of the poor should be neglected, but the poorest must come first. Any violation against the most primary right to life must command our attention before all other violations.

This means more than policy changes. We must reach out to our neighbors and establish relationships with each other. The poor must be given proper care and just means of subsistence to not feel as though abortion is the only option. The greatest contributor to abortion, sexual immorality, must be fought with charity, education, and justice.

Laws which authorize and promote abortion and euthanasia are therefore radically opposed not only to the good of the individual but also to the common good; as such they are completely lacking in authentic juridical validity. Disregard for the right to life, precisely because it leads to the killing of the person whom society exists to serve, is what most directly conflicts with the possibility of achieving the common good. Consequently, a civil law authorizing abortion or euthanasia ceases by that very fact to be a true, morally binding civil law." -- John Paul II, The Gospel of Life, emphasis added