Sometimes I wonder just how much the general population really is paying attention to the economy.  A report issued on Wednesday by the Congressional Budget Office lays out various scenarios for 2013, depending on whether or not expected policy changes occur on January 1st.

What Policy Changes Are Scheduled to Take Effect in January 2013?

Among the policy changes that are due to occur in January under current law, the following will have the largest impact on the budget and the economy:

• A host of significant provisions of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Public Law 111-312) are set to expire, including provisions that extended reductions in tax rates and expansions of tax credits and deductions originally enacted in 2001, 2003, or 2009. (Provisions designed to limit the reach of the alternative minimum tax, or AMT, expired on December 31, 2011.)
• Sharp reductions in Medicare’s payment rates for physicians’ services are scheduled to take effect.
• Automatic enforcement procedures established by the Budget Control Act of 2011 (P.L. 112-25) to restrain discretionary and mandatory spending are set to go into effect.
• Extensions of emergency unemployment benefits and a reduction of 2 percentage points in the payroll tax for Social Security are scheduled to expire.

CBO’s Baseline: Taking into account the policy changes listed above and others contained in current law, under CBO’s baseline projections:

• The deficit will shrink to an estimated $641 billion in fiscal year 2013 (or 4.0 percent of GDP), almost $500 billion less than the shortfall in 2012.
• Such fiscal tightening will lead to economic conditions in 2013 that will probably be considered a recession, with real GDP declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013.
• Because of the large amount of unused resources in the economy and other factors, the rate of inflation (as measured by the personal consumption expenditures, or PCE, price index) will remain low in 2013. In addition, interest rates on Treasury securities are expected to be very low next year.

The CBO also suggests an alternative fiscal scenario, as follows:

An Alternative Fiscal Scenario: To illustrate the consequences of possible changes to current law, CBO has produced projections under an alternative fiscal scenario that incorporates the following assumptions: that all expiring tax provisions are extended indefinitely (except the payroll tax reduction in effect in calendar years 2011 and 2012); that the AMT is indexed for inflation after 2011; that Medicare’s payment rates for physicians’ services are held constant at their current level; and that the automatic spending reductions required by the Budget Control Act, which are set to take effect in January 2013, do not occur (although the law’s original caps on discretionary appropriations are assumed to remain in place).

That set of alternative policies would lead to budgetary and economic outcomes that would differ significantly, both in the near term and in later years, from those in CBO’s baseline:

• In 2013, the deficit would total $1.0 trillion, almost $400 billion (or 2.5 percent of GDP) more than the deficit projected to occur under current law.
• The economy would be stronger in 2013: Real GDP would grow by 1.7 percent between the fourth quarter of 2012 and the fourth quarter of 2013, and the unemployment rate would be about 8 percent by the end of 2013, CBO projects.

In the long term for the years 2014 through 2018, the CBO suggest that if no changes are made to the current policies:

Under the alternative fiscal scenario, deficits over the 2014–2022 period would be much higher than those projected in CBO’s baseline, averaging about 5 percent of GDP rather than 1 percent. Revenues would remain below 19 percent of GDP throughout that period, and outlays would rise to more than 24 percent. Debt held by the public would climb to 90 percent of GDP by 2022—higher than at any time since shortly after World War II.

Real GDP would be higher in the first few years of the projection period than in CBO’s baseline economic forecast, and the unemployment rate would be lower. However, the persistence of large budget deficits and rapidly escalating federal debt would hinder national saving and investment, thus reducing GDP and income relative to the levels that would occur with smaller deficits. In the later part of the projection period, the economy would grow more slowly than in CBO’s baseline, and interest rates would be higher. Ultimately, the policies assumed in the alternative fiscal scenario would lead to a level of federal debt that would be unsustainable from both a budgetary and an economic perspective.

As you can see, the fate of our economy rides on the policy changes, if any, that are to be enacted at the first of the year.  Neither scenario is rosy.  The extended forecast isn’t any rosier.

These economic predictions are implanted firmly in the mind of North Miami Beach Mayor George Vallejo, whose business it is to study the economy more intently than the average citizen.  Some say he is stubbornly clinging to “his own agenda,” and worse, some even have the audacity to claim that the Mayor is “radical” or that he “has ulterior motives.”  As laughable as those accusations are, I’d like to remind the residents how not so long ago they complained about a former mayor, whose unethical (and possibly criminal) behavior made us the laughing stock of the country.  A mayor who is “out for his own agenda” is one who would take advantage of feeding at the public trough by staying at local hotels for local events under the guise of being able to observe the Sabbath, which prohibits driving, while he was caught driving on the Sabbath several months later to campaign.  A mayor who is “out for his own agenda” is one who uses local taxpayer money to pay for a high tech medical device that our own servicemen and women, who gave their limbs for our country, could never afford in a million years.  A mayor who is “out for his own agenda” is one who bullies employees and threatens residents with code violations if they don’t do his bidding.  Sorry, folks, but the only “agenda” our Mayor is “out for” is the responsible stewardship of our hard earned tax dollars.  If that’s “radical,” so be it.

Thomas Jefferson once said, “I, however, place the economy among the first and most important virtues, and public debt as the greatest of dangers to be feared.”

Then again, I’m pretty sure that Thomas Jefferson didn’t have his own government run garbage service or he else he wouldn’t have given a damn about the economy.  He might have been more than happy to add to the public debt if it meant being the proud owner of a North Miami Beach garbage truck.

Frankly, though, I’m sick of talking about garbage.  As long as the city is being held hostage by the public union, no rational discussion will be had on this topic.  If North Miami Beach goes bankrupt, why should I care anyway?  My children left NMB for greener pastures and are never coming back, so it’ll be someone else’s kids who’ll get stuck paying the tab.  I certainly don’t plan on retiring here, either, so go ahead, keep your garbageman.  No skin off my back.

In an interview with the Mayor yesterday, I asked him why he was pushing the issue of privatization so strongly despite the appearance of negative public opinion.  I even went so far as to audaciously suggest he back off altogether for the next fiscal year until a new City Manager is hired and the budget is finalized.  The Mayor responded, as I expected he would, that he firmly believes in fiscal responsibility, and that if drastic measures aren’t taken now, the city is headed for bankruptcy.  When I told him that some have suggested he is committing “political suicide” by not backing down, the Mayor simply responded that he ran on a promise of fixing the current budgetary mess permanently and not kicking the can down the road for our kids to pick up the tab.  Mayor Vallejo might be stubborn, but he will not compromise his principles.  “Political suicide” or not, not too many elected officials have the fortitude to stand by their principles.

A recent article published in the National Review entitled Are We Doomed? spells out the harsh reality:

We are currently mired in the slowest recovery from any recession in our modern history — and we face the same circular dilemma.

How to break the cycle of less money coming in, ensuring more money going out? Curbing entitlement spending is critical if we are to rein in debt and foster initiative, but in the short term such sobriety will raise howls of protest from those who are hurting and the legions invested in administering their entitlements.

We see the symptoms everywhere of a political discourse that has nothing to do with reality. Agribusiness and its apologists in an age of record farm prices insist that growers will perish without direct crop subsidies. We are lectured that the inner-city impoverished go to bed hungry, even as a greater number suffer from obesity; the administration cannot decide whether overeating or starvation plagues the underclass. Poor flash-mobbers rarely go after bulk foodstores when they can loot pricey sneakers and electronics. Entire industries exist to figure out how to sign parents’ assets away to their heirs so that the instantly impoverished mom and pop can receive free government nursing-home care. Police, firefighter, and non-combat military pensions and benefits are considered sacrosanct and are a third rail to anyone foolish enough to question them — even though the all-night 7-Eleven clerk, the freeway construction-crew member, and the private security guard are far lower paid, may face as much danger, and as taxpayers are expected to fund compensation for others that they could never dream of for themselves. Pious professors and administrators hector the public about the value of a college education and worry little about creating newly indebted generations — who will never attain the lifestyle of those professors and administrators whom they subsidize.  Our salvation lies in a group of politicians who will balance budgets, put entitlements on a fiscally sustainable basis, and remind Americans that in comparison with our predecessors — who gave us much of what we enjoy — we live amazingly prosperous lives. If history is any guide, such frankness will never happen. Financial implosion, not prudent correction, is the usual remedy for reckless expenditure.

For the record, as most of you know, when it comes to fiscal responsibility I am firmly in the Mayor’s camp.  There are some folks in North Miami Beach, however, who are now wearing rose colored glasses for past administrations which spent our tax dollars frivolously without regard for the future.  All they know is that when former-former-former mayor Jeff Mishcon occupied the corner office, everyone was happy.  They conveniently forget, or just never realized, that his tenure helped set up the fiscal disaster we are facing today.  Mayor Vallejo is in the unfortunate position of having to deal with that wreckage.  He’s also in the hot seat for pushing the necessary belt-tightening policies that he firmly believes is in the best interests of the future of North Miami Beach.  There really is no spoonful of sugar for the medicine we will be forced to take if the city continues on its path of destruction.

Those who miss the good old boy political network like the ilk of Jeff Mishcon and others need to understand that giving away the farm to placate the masses is akin to doling out heroine to drug addicts.  The “solution” only exacerbates the problem.

A brand new word was recently coined, which describes to a tee the mentality of a bygone era of political governance – ineptocracy, which is defined as:

Ineptocracy (in-ep-toc’-ra-cy) – a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

Out of dire necessity, the ineptocratic leaders of the past have given way to a new form of governance.  Men and women who understand economics and who believe in governing with a responsible fiscal hand are stepping forward at their own risk of “political suicide” to try to turn around the economic Titanic which has become the state of our nation, our state and our city.  If the Mayor is committing “political suicide” by pushing the economic reforms he not only promised, but which are desperately needed in North Miami Beach, so be it.  If he fails to institute a sane economic policy because his colleagues cave to the entitlement mentality of “public outcry,” it will be at the peril of our children.

Or, rather, your children.  Mine were smart enough to move out of North Miami Beach long before our Titanic hit the iceberg.  Believe me, they’re not looking back.

Stephanie Kienzle
“Spreading the Wealth”