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What is a crisis of confidence, and how do we get over it?

By   /   Friday, June 22nd, 2012  /   Comments Off on What is a crisis of confidence, and how do we get over it?

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David Newton, a professor at Westmont College, is the editor of a new book called “Crisis of Confidence.”

It has a clever title. And, for the public-affairs junkie, it’s a good, quick read through the fiscal and public policy challenges facing the country. There is a thorough explanation of the “fiscal cliff” that we face in 2013 when the Bush-era tax cuts expire. The charts are clear, and the writing is, too.

But the best thing about it may be that the contributors aren’t pundits for hire. They are graduating seniors in business and economics at Westmont.

As a guy who gives lectures for a living, Newton has trained his contributors well. They have a good feel for explaining how much entitlements, if left to grow unchecked, will soak up in federal spending over time. His  contributors have  a conservative bent and a strong understanding of how advances in medicine are both bankrupting Medicare and causing us to live longer, thereby putting more and more pressure on Social Security.

“Crisis of Confidence” correctly points out that very little is etched in stone when it comes to the history of America’s tax and fiscal policy. The architects of Social Security didn’t expect the average person to live long enough to collect a penny.

As average life expectancy has risen, Social Security has undergone numerous “reforms” and it is overdue for a new overhaul. The tax code has been tinkered with endlessly, resulting in a complex, cumbersome and costly system.

But what exactly is this crisis of confidence? Is it President Barack Obama’s inability to instill public confidence in economic matters? Is it the policies themselves?

Is the real crisis the House and Senate centrists’ inability to cobble together the majorities needed to pass entitlement and tax reforms spelled out in the recommendations of the bi-partisan Bowles Simpson plan?
Is it the Republican Party that has a crisis in confidence over Grover Norquist’s no-tax pledge? Over the bizarre combination of birther and anti-immigration movements that have taken hold among a segment of Tea Partiers?

From my vantage point, it seems clear that something along the lines of Bowles-Simpson, the plan co-authored by former Clinton administration chief of staff Erskine Bowles and Alan Simpson, the former Republican senator from Wyoming. It will likely mirror the Greenspan Commission’s actions in the 1980s, gradually raising the retirement age for Social Security and increasing payroll tax contributions to both Social Security and Medicare.

When it comes to taxes, I continue to believe that the biggest fiscal mistake was not the big deficits that came with the Great Recession but conducting the wars in Iraq and Afghanistan without asking the American people to underwrite part of the cost.

My rationale for going along with a $100 billion-a-year tax hike envisioned under Bowles-Simpson is that the interest on our $1 trillion in external war debt and the cost of taking care of injured veterans should not be kicked down the road.

And I’m a big believer in the entrepreneurial power of immigrants. Having a sensible visa policy and creating a path to citizenship for illegal immigrants who have skills and are able to pay their own way could create jobs and tax revenue.

The word confidence has a lot of power. That’s partly because it cuts two ways. In Shakespeare’s “Macbeth,” a crisis of confidence over the murder of the king leads to bloodshed and tragedy. In Herman Melville’s “The Confidence Man,” a tall stranger steps aboard a Mississippi River steamboat and finds unusual ways to take people’s money by preying on their fears and prejudices.

One final point. Whether it is Team Newton, Bowles-Simpson or just about any other group that seriously studies the Fiscal Cliff, the solutions are pretty clear. They include:

• A flatter, simpler tax system that closes loopholes and yields about 18 percent to 20 percent of GDP , up from around 15 percent today.

• A broad reform of entitlements to bend costs downward.

• Much greater certainty for business about the future cost of health care and future tax rates.

But getting there is much more difficult, and having staked out some turf on the conservative side of the fix spectrum, Team Newton will get a chance to see how the actual solutions — or lack thereof — square with their view of what should be done.

• Contact Editor Henry Dubroff at [email protected]

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