A Little-Noted Lesson from the Fiscal Cliff

Apparently, the country will be taking a leap off the so-called fiscal cliff, since–despite a flurry of last-minute activity and a vote by the Senate–midnight came and went without passing anything. (And even the Senate’s measure didn’t remotely resemble a “grand bargain.”)

For most of us, the tax consequences are likely to be short-term. Incredibly, a significant number of Representatives refused to vote in 2012 to terminate the Bush tax cuts for rich folks, but are perfectly willing to come back early in 2013 after the cuts have expired and vote to reinstate them just for the non-rich. Why is that, you might reasonably ask, when the result will be exactly the same? Because they can then tell their constituents they never voted for a tax increase. They evidently think the American public is really, really stupid–and we elected them, so maybe they’re right.

Then there’s the issue of spending cuts. If a larger deal cannot be negotiated, and the dreaded “sequester” goes into effect, we’re told that government spending will be sharply reduced. And that’s true–as far as it goes. But the nasty little secret is that government is no longer a word that describes…government. As in public sector employees and elected and appointed officials. After decades of privatization and contracting out, government is all of us and everywhere–defense contractors, civil engineers, social service agencies and other for-profits and nonprofits that depend upon government contracts to survive. The last analysis I saw–and it is now several years old–counted some eighteen million people working full-time at ostensibly private and nonprofit sector jobs that were wholly supported by our tax dollars.

Retrenchment in those government contracts–required by the sequester–will affect more than just those 18+ million people who are employed in what we might call the “quasi-government” sector. When the defense contractor loses his biggest customer, his suppliers lose theirs, and so on down the line. The economic contraction would be rapid and severe.

I say it “would be” because I believe that the reality of that outcome will quickly become apparent even to the less-than-brilliant policymakers in Congress. (Their constituents can be counted on to point it out, if they somehow don’t get it.) Call me Pollyanna, but I think we’ll see some sort of acceptable-but-not-ideal agreement early in January.

Even if we evade economic disaster via fiscal cliff-diving, however, it may be worth pondering the largely unrecognized extent to which the private and nonprofit sectors are now part and parcel of that “bloated and wasteful” government we routinely excoriate, and the extent to which demands for cuts in “government spending” threaten to reduce our own incomes. That’s certainly not an argument for unrestrained spending; it is, however, an argument for recognizing economic reality and the extent to which “privatization”–which has increased, rather than reduced, the size of government–has made necessary spending cuts infinitely more difficult.

Happy New Year.