If you have picked up a newspaper or turned on the television to watch the news, you have more than likely heard about the impending “fiscal cliff” of doom. When I hear the term fiscal cliff, I immediately imagine hopelessness–a point of no return…(much like the picture [left] suggests).
The term fiscal cliff became popular this past year when Ben Bernanke, chairman of the U.S. Federal Reserve, used it to describe laws on the books–coming into effect in 2013–as:
…a massive fiscal cliff of large spending cuts and tax increases.
But what is the fiscal cliff?
The fiscal cliff is an expression to explain the conundrum that Congress has on its plate. There are certain laws that are set to come into effect or expire, January 1, 2013. Some of the key pieces of legislature that are accelerating American towards the fiscal cliff are:
- Expiration of Bush tax cuts, which were extended by Obama’s Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010;
- Expiration of delaying the Medicare Sustainable Growth Rate, which was extended under the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA);
- Implementation of the Budget Control Act of 2011, which will cut spending across the board;
- Expiration of the 2% Social Security payroll tax cut, which was extended by MCTRJCA;
- Expiration of federal unemployment benefits, which were extended by MCTRJCA;
- New taxes to cover the Patient Protection and Affordable Care Act (ObamaCare); and
- New taxes to cover the Health Care and Education Reconciliation Act of 2010.
Oh dear, what are we to do?
I originally thought that with $16,400,000,000,000.00 in national public debt, there is no way that America will ever get the debt or its spending under control–so why even bother?
Then I thought, let me reflect on history and see how America has come out in other circumstances.
America started out as a broke country; to gain our independence, Americans had to win a very lengthy, expensive war. The estimated cost of the Revolutionary War, in inflation-adjusted United States dollars, was 2.4 billion dollars. You don’t engage in a 2.4 billion dollar war and not owe money to anyone. In addition, the War of 1812 cost another 1.5 billion (inflation-adjusted United States dollars). I am sure that the politicians of these days were just as overwhelmed as our current Congress officials;however, with some hard work and dedication, the United States of America became debt-free in 1835. One of the main ways this was achieved was by creating a home market for goods produced in the United States. All foreign trade was cut off, and while purchasing American products were more expensive, it lead to a booming economy. (Cough, Cough, China… Cough) Unfortunately, this did not last very long. In 1836, just one year after becoming debt-free, America started to take on debt again.
Another costly event was the American Civil War. The American Civil War lead not only to loss of human life, but loss to lots of money. Combining both the cost for the North and the South, the inflation-adjusted cost was 79.7 billion dollars. After the Civil War, the United States of America has a national debt of $39,103,472,140.00. When it was over, the South was in ruins. Many southern states had been plagued by constant battles, and inflation of the Confederate dollar rose above 9000%.
It has been less than one-hundred and fifty years since the end of the Civil War. It was a long road, but some southern states have come out on top. Take the state of Georgia.
Untouched for most of the first half of the war, the second half of the war led to more that five-hundred battles and skirmishes within the borders of Georgia. When Georgia’s capital city, Atlanta, was taken by the Union Army and General William Sherman, Sherman ordered the people residing in Atlanta to evacuate and then burned the city. General Sherman wrote in his memoirs,
Behind us lay Atlanta, smouldering and in ruins, the black smoke rising high in air, and hanging like a pall over the ruined city.
The Wikipedia entry on Georgia’s Re-entry to the Union says:
The war left most of Georgia devastated…the state’s economy in shambles.
The state remained poor well into the twentieth century. Georgia did not re-enter the Union until June 15, 1870, more than two years after South Carolina was readmitted. Georgia was the last of the Confederate States to re-enter the Union.
And where are they today? Near the top…Less than one-hundred and fifty years, and Georgia has completely rebuilt itself.
The Frazier Institute just published their annual Economic Freedom of North America 2012 report. Among all the United States, Georgia came in as number 8 (eight). A state that was last to re-enter the Union, a state which remained poor well into the twentieth century, a state with its economy is shambles has clawed its way to the top.
Just as Georgia has proved that economic freedom can be gained, America has risen from low points as well.
There will be more on America’s economic woes on the next post, so check back later for that.