Questions for your next Congressional debate

Much of the press concerning the pre-election end of the 112th Congress is focused, rightly, on the unfinished spending and farm bills.  As good citizens we ought to read through this and consider it in light of the upcoming election.  As an added bonus, more time spent reading about legislation means less time watching political ads.

However, here at Pie and Policy we try not to focus on the headlines, and instead step back and look at the larger narrative.  With that in mind, here are two fundamental questions about the next chapter in the United States' history that your pie maker would love to hear his candidates answer:

(1) What size recession are you willing to cause next year?

Consider this: 10% of the Gross Domestic Product (GDP) this past year consisted of the Federal government borrowing or printing money, i.e. borrowing money from the Federal Reserve.  While no one thinks this is sustainable, it means that roughly 10% of all of the mortgages in the US, 10% of the shopping and probably more than 10% of all jobs require the United States to carry a sizable current accounts deficit.  Fiscal responsibility is a good thing, but its meaning gets murky once you put on the green eye shade.  For an example of austerity gone wrong, buy a ticket to Athens, and the Parthenon while you're at it.

There are three fundamentally different answers to that question tossed around this year.  The first is "I don't want to cause a recession at all," which is being pushed by those demanding that there be "no cuts to Defence!" or tax hikes either "for anyone" or "for the middle class."  This approach is known as "kicking the can down the road", and a good follow up question is "how do we get to a sustainable deficit?"  Honestly, the election should hinge on who can provide the best answer to that question.

The second option is to fall off the Fiscal Cliff, which no one seems to want to do, but House Speaker John Boehner warns is very likely.  Odds are good that the current Congress will agree to put the actual decision in the hands of the next Congress, much like happened in 2010, and so this is an entirely valid question of both candidate and challenger.  Left to its own devices, this approach results in a sudden drop of roughly 5% of GDP, so a net loss of 4%.  For comparison, the drop was 2.8% between 2008 and 2009.

The third answer, for which you'll find few serious minded advocates outside of Gary Johnson, is to cause the full 10%, or nearly so, and balance the budget.  The ramifications of that are very interesting, as it would probably lead to a substantial "un-development" of the United States in favor of a Jeffersonian vision.  If someone advocates this and can't describe the consequences, probably best to not vote for them.

(2) When you say "more jobs", doing what and for whom?

Policy has a dramatic impact on which industries are able to get capital, regulatory approval, their goods to market and the cost of production.  If policy favors industries for which there is a ready labor supply and strong demand, then it can be said to be creating jobs.  The GOP's focus on rewarding capital gains over other earned income makes the actual employment of people much less attractive than use of machines for production and increasingly elaborate credit systems for payment, often to workers abroad. Democrats argue for increasing labor and production costs through tighter requirements on work conditions, health insurance coverage and pollution.

In some industries, such as financial services, there is enough demand that regulation such as Sarbanes-Oaxely is more of a public-works program for accountants than an actual hindrance to economic activity.  In others, such as manufacturing, aviation and medical devices, business either moves abroad or doesn't happen.  There are risks and externalities associated with any jobs, and it would be more productive as a polity to discuss those trade-offs than abstract questions about the "size and role of government."