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On the edge of the cliff?


Raise taxes, cut spending. In all the world, that’s the prescription the International Monetary Fund, World Bank and the greater powers of the European Union have for all countries whose out-of-control debt is threatening the global economy.

That’s the medicine prescribed for Greece, Spain and Portugal. And when the leader of Italy’s unelected technocrat government, Mario Monti, decided to step down over the weekend, the country’s stock index took an immediate hit.

Monti was specifically placed in office to raise taxes and cut spending in 2011, when Italy was poised on the verge of a Greece-like economic meltdown. As directed, he raised taxes and cut spending, and despite the pain inflicted on the Italian middle class, he’s widely seen as the county’s saviour.

So, if raising taxes and cutting spending is called good (if bitter) medicine in all the world, why is it called a fiscal cliff in the United States? Why is prudent government something to be feared in what is still the world’s largest and most influential economy?

Here in Red Deer, why should we be afraid that America might go over that cliff? Because they won’t buy as much of our oil and gas? That doesn’t seem likely. Because they won’t buy our manufactured goods? We already buy far more of these things from the U.S. than they buy from us, so a drop in these exports should hardly be called a fiscal cliff in Canada.

I make no claims to understanding that disconnect. In fact, I wish somebody could make a clear explanation as to why raising taxes and cutting spending in America is bad, where for everywhere else on the planet it’s the basis of qualifying for economic bailouts.

The reasoning can’t be completely blamed on America’s high debt-to-GDP rating. According to IMF figures, it’s 103 per cent. The rate for Greece is 161 per cent. Italy, where the tax-and-cut turnaround has begun, is at 123 per cent. Spain (a troubled economy, by most reports) has a debt-to-GDP ratio of only 68 per cent, which is far less than strong-economy Canada’s 85 per cent. France, at 86 per cent, is said to be in the danger zone, while Britain, at 82 per cent is said to be close to some serious trouble.

No strong trend indicators there.

Pundits are telling us that if America puts a surtax on high incomes, and cuts program spending (primarily in the military, but also in health care reforms), the result will be like taking everyone’s spending allowance away. The rich won’t buy stuff (as if), the middle class will have less (what else is new?) and the poor will have less of a safety net (America? Safety net?).

And there will be another recession.

I suppose the pundits do know what they’re saying, but nobody has explained the alternative. Debts have to be paid, governments can’t run away from reality . . . or they must eventually run over a cliff.

Better sooner than later, I say. Until we get better information, it seems to me that America faces a chimera, not a fiscal cliff.

We should worry more that President Barack Obama, Congress and the Senate patch together some sort of delay tactic, rather than face their problems head on.

America should not be above taking its medicine. Neither should Canada, when we need it.

Greg Neiman is a retired Advocate editor. Follow his blog at readersadvocate.blogspot.ca or email greg.neiman.blog@gmail.com.

 
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