Fiscal cliff? What’s that?
I asked Professor Mankad (Sir). He explained it to me in detail. I loved learning that big picture from him. I must admire President Obama for the way he has put in his plan. Everyone in US Admin knows that “We are in trouble”. But how to get your idea win, should be learnt from Obama & Team.
When Sir explained whole thing with immense patience, I thought about what could be the solution. Sir also suggested that what are the possibilities and what could be the likely future? I felt – we are (going to be) in deep trouble. Sir suggested that this trouble could be even deeper, longer and disappointing than the 2008 melt down.
I’m scared. For all such troubles I always look at the other side as solutions. OTHER SIDE here means socialistic approach to solving capitalistic problem. I smsed Sir – could “Sanjha Chulha*” be the solution? It would help provide few jobs for people in Sanjha Chulha and reduce expenditure of unemployed on food. When that happens, Govt can reduce expenditure of unemployment benefits.
*Sanjha Chulha means community kitchen.
The other approach I thought was using TRIZ. Actually that is what Govt must be doing (without the jargon of TRIZ). Before discussing the solution framework, a brief on Fiscal Cliff (Details – About link and Wiki link).
Fiscal Cliff – is a deep impact due in the budget of Govt. Because as per “Bush tax cut” (of 2003) the taxes would increase at the same time Govt has to reduce spendings e.g. unemployment benefits offered for 99 weeks would reduce to 52 weeks, defense budget reduce by say 50% etc. All of this would result in recession in the USA. The challenge for Govt is – how to control it? Fiscal Cliff is also a function of debt reaching a ceiling % of GDP.
In TRIZ there is a solution type for such issues. That is named as physical contradiction, which means you want something and you dont want that at the same time. You want Tax cut and you dont want that. You want reduced expenditure but you dont want that.
Simple solution is – “increase ceiling debt as % of GDP”. Other solution would be, TRIZ offers solution by separation principle.
1. Separate tax collection based on condition. This is tried arguement is on tax ceiling (Obama says 400k, Congress says 1M).
2. Separate tax collection based on organization vs individuals. In TRIZ it is kind of separation of parts Vs the whole.
3. Separate tax collection on time. This separation could be coupled with solution 1.
1. Separate spends based on condition. spend ceiling on spends of different types
2. Separate spends based on community vs individuals. Healthcare Vs unemployment benefits
3. Separate spends on time. Delay spends which could be avoided.
For testing all these ideas a very simple mathematical model and “goal-seek” of Microsoft Excel can be used. (Though its not that simple – but who wants to complicate things? Objective is to simplify life) politicians/consultants like complexity, who can leverage it.
Relevant news Euro debt reaching 90%
Related blogs –
1. Double dip
15 Comments
upreetipreeti · December 27, 2012 at 11:08 am
Good Morning Pravin, Thanks for making it easier to understand “Fiscal Cliff”- u want it but u don’t want it. I eagerly wait for your insightful writings. thank u once again.
Preeti
KRD Pravin · December 27, 2012 at 11:58 am
I think you got it wrong (my mistake in explaining. I think I need to reread my blog if I wrote anything wrong). Fiscal Cliff is not wanted.
The idea of something wanted and not wanted is called physical contradiction in TRIZ. In case of fiscal Cliff – tax cut is wanted/needed and not wanted/not needed, this is a physical contradiction. Spend stop and spend continue is a kind of physical contradiction. Get me!
To learn more on fiscal Cliff please read yes links given. Advise from prof Mankad read Huffington post. How this helps you clear misconception
upreetipreeti · December 27, 2012 at 12:28 pm
Thank u. 🙂
rummuser · December 29, 2012 at 10:18 pm
Thank you. I can now start calling you Professor Kumar. I think that you should read this one before you get hooked on to Huffington Post. http://www.vanityfair.com/politics/2012/10/michael-lewis-profile-barack-obama
KRD Pravin · December 30, 2012 at 1:37 pm
Why Professor Kumar? What did I do? I did not understand it…
rummuser · December 30, 2012 at 3:20 pm
Kumar short for Pravin Kumar and Professor because you are now professing a solution!
rummuser · December 30, 2012 at 9:22 am
And to get you thinking all over again, http://michael-hudson.com/2012/12/americas-deceptive-2012-fiscal-cliff/
KRD Pravin · December 30, 2012 at 1:39 pm
Yes uncleji, Professor Mankad told me – this is more of a political cliff rather than a economic (fiscal) cliff. Thats true also – This fiscal cliff is a problem between Congress and Senate, between Republicans and Democrats.
And the whole world economy has come to this tip where both sides are devil and deep sea together.
Lehcnahc Nonem · January 2, 2013 at 3:51 pm
Good article, even though I have some different views about this.
First of all, Everybody agrees that US must take steps to address the existing budget deficit. So, raising the ceiling debt is like postponing the inevitable.
So, how can you address it. Everybody in US politics talks about a balanced approach, i.e. tax increases and spending cuts. But will it be really balanced?
This is the crux of the matter in US, when they talk about fiscal cliff. Where to make the sacrifices to address the budget deficit.
Do you know that US needs to cut 1.2 trillion$ over 10 years to address the budget? And do you know how much spending cuts Obama has proposed to republicans? It’s 3 trillion$ over 10 years, that too not in defense majority – Healthcare, veteran funds, social security.
During the last decade, the corporates and the wealthy have not paid their fair share of taxes to US government due to Bush tax breaks, Overseas tax shelters and majority of income coming through investments (which do not get taxed as per normal rates). Even after accumulating this much of wealth, to say for every 1$ tax increase they will get, the US government should reduce its spending by 3$ is not fair.
But let’s assume US government does not do anything and allows Bush tax cuts to expire. It will give around 950 Billion $ from people who earn over 200K$. So, you will automatically address the fiscal cliff. That’s why fiscal cliff is just a fabricated emergency to extend tax cuts and subsidies to the wealthy.
Lehcnahc Nonem
KRD Pravin · January 2, 2013 at 4:08 pm
You are right Lehcnahc. Typing that name was tough 😀 You know what? Writing your name in reverse order is very difficult 🙂 Chanchel. That apart.
What you say makes perfect sense. When Prof Mankad completed explaining Fiscal Cliff to me I realized that it is more of a political problem and not an economics problem. That’s what he suggested too.
One simpler solutions is – Print more $, Who has stopped them from doing that? I read somewhere that during great depression they did the same.
Keeping all this aside, after this Fiscal Cliff thing, I started admiring Obama. Though he may not be the right person for Indian IT companies etc. But what he is trying (3 trillion deficit cut) makes lot of sense to my small mind which thinks more of surviving on our earnings rather than the DEBTS.
Unfortunately, the biggest business of the world – Arms and wars – wont let the US budget spending cut to happen on defense budget (republicans survive on this). So what is left? Healthcare, social security etc (which is what is the bread and butter of Democrats). Such politics.
Lehcnahc Nonem · January 2, 2013 at 4:45 pm
Printing more $ was easy just after the war as almost 80% of the major economic powers of that time were completely wrecked. Britian was no longer the power it used to be, German mark got devalued and US dollar was virtually the world currency with the backing of vast gold reserves.
Today, the situation is different. You have other currencies which are slowly coming up in its own right – Renminbi, apart from Yen, GBP, Euro, CHF.
Also, there are lot of countries with significant contribution to world GDP than in 1940s.
So, printing more $ does not have the impact it used to have.
As for Obama, my opinion of him is not that good. He has been a terrible negotiator on a number of things over the last 4 years and this trend is continuing. The US public has given him the power in this elections. Republicans have been crushed and Democrats have the full power to take actions.
But Obama is just giving the republicans what they want. Even before negotiations started, Obama was ready to cut on social programs while Republicans were too vocal in saying that tax increase is not an option. To cut short, Obama is a poor negotiator and this should be shown in business classes to teach students “How NOT to negotiate”.
In other areas also, he is below par – Social liberty, Justice, Civil laws, Media freedom, Extrajudicial killings, Gun control, …
What a shame! He promised so much, yet delivered so little. I fear the public is not going to trust any other “change promiser” for next few decades.
The only reason Obama he won the elections this time is because some of Romney’s policies were too stupid and backward.
KRD Pravin · January 3, 2013 at 10:23 am
Printing $ was an example people talk in a very light hearted manner. Personally, if that were the solution we wont have faced 2008 or any other down turn.
Why I said Obama was because he made Republican (Congress) come to some decision. The decision may be argued till cows come home. But the decision to work on Bush tax break. And specially the way Obama put it to congress was interesting therefore I said I liked approach of Obama. Keeping aside other stuff which you are talking – we in India are also worried about his stance on Outsourcing. But what he is doing is good for his country, why would he think about India, or China for that matter?
In fact see news of last couple of months manufacturing jobs are going back to US… shouldn’t the world be surprised? Of course we can again argue on how many? and how long US can survive or try to survive as an isolated place (if it is trying to!).
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