In one of the Star Trek movies, I believe 'The Wrath of Khan', a computer-generated simulation test - called the "Kobayashi Maru" - is given to a budding young Star Fleet cadet. The test ends in disaster with all on board annihilated by Klingons, and it's only afterward the cadet is informed it was really a "no win" situation. In other words, whichever strategy she selected would also have ended up in major loss, including destruction (or boarding) of the Enterprise.
This resonates with an article entitled 'When to Choose is to Lose' which appeared in the Sept./Oct. 2007 Psychology Today (p. 69) noting that in an era of downward driving indicators, i.e. deficits, unemployment for economics, it is essentially impossible to make a single "winning" choice that maximizes gains and minimizes losses. As the author of the piece notes, striving to maximize your choices, only makes sense when they are obvious and few - not otherwise.
This also correlates (and indeed is indirectly based upon) author Barry Schwartz's ('The Paradox of Choice') take on "opportunity costs", "upward counterfactuals" and "downward counterfactuals". To be brief here, because I want to get on to the just released Congressional Budget Office (CBO) Report, "opportunity costs" (p. 120) entail the costs involved when we must pass up another option. In other words, the benefits that would have likely accrued with that other option, are passed up and hence interpreted by us as "costs".
According to Schwartz (p. 154) , "upward counterfactuals are imagined states that are better than what actually happened, and downward counterfactuals are imagined states that are worse"
A circumstance for downward counterfactual thinking might be a guy who's done reasonably well for himself - has a decent, fairly good paying, steady job but fancies a better, more responsible position, say higher up. But in an environment of high unemployment, and tight fisted corporate money, he imagines being flat turned down and moreover told not to expect any such positions in the future - and hence contents himself with his current station.
By contrast, if the guy engages in upward counterfactual thinking he imagines not only getting the higher position but a lot more money, plus perks, to boot.
But what if the guy then doesn't get that job, as his upward counterfactual imagination implodes? Then we can say he will likely be quite depressed at the outcome. As Schwartz notes, it is only in the case of the upward counterfactual thinking where the success is denied that diminishes the guy's sense of achievement. He concludes, ibid.:
"So generating downward counterfactuals might engender not only a sense of satisfaction, but a sense of gratitude that things didn't turn out worse."
Now, let's flip to the just issued CBO report , the main highlight of which is a projection of only 0.5% growth next year, and 9.1% unemployment, if the "fiscal cliff" isn't avoided. Thus, the CBO warns that unless congress acts, i.e. to approve extending all the tax cuts, including payroll tax cuts - the nation will likely be thrust into a 2013 recession with "2 million jobs lost".
This is the part of the report that the Neoliberal media has played up, as on MSNBC this morning. Not reported, or not emphasized is the other part of the report, which is well summarized in an AP release on it:
"While extending the tax cuts and avoiding the spending cuts (i.e. to the Pentagon via sequestration) would keep the economy stronger over the next two years, continuing those policies would produce annual budget deficits averaging almost $1 trillion for the next decade. That would produce debt totalling nearly $10 trillion for the period- pushing the government's cumulative debt to nearly 90% of the economy by 2022."
The AP release goes on to state that while the "fiscal cliff" (ending the Bush tax cuts, payroll tax cuts) would "cause quick economic damage" it would produce more deficit reduction."
The release goes on to cite a drop from a deficit of $1.1 trillion this year to $641 billion next year.
The point is the CBO report is actually presenting us with a CHOICE, not a simple doom and gloom message. The problem is that it's choice that entails loss, one way or the other. It's like an economic Kobayashi Maru test. If congress elects to avoid the "fiscal cliff", which I've already noted as an overblown and over-hyped threat, e.g. see my earlier blog , then all will be well for two years, except at the cost of adding a trillion in deficits each of the next 2 years. If on the other hand, congress lets ALL the tax cuts expire (as they should) we at least put a major dent in the deficit and have more downstream revenue with which to work, but at a possible cost of minor recession and 2 million more out of work. Lose, lose.
Or is it?
I happen to accept, instead of the dire forecasts of the CBO, that allowing the fiscal cliff to manifest will actually be a boon and generate more jobs. This evidence was first cited by authors James Medoff and Andrew Harless, The Indebted Society, 1995, 'Let Them Eat Cake', when they looked at actual data (over decades) and found (p. 87) that "high tax rates are associated with higher productivity growth. There is a consistent and strong relationship".
The higher productivity growth was also in terms of real job growth, with companies investing in more plant, as well as labor. The benefits cited in the Medoff and Harless analysis were reinforced in the (2010) Financial Times analysis of the Bush tax cuts, which found - contrary to the mythology spread - that the years of the Bush tax cuts marked "the weakest decade in U.S. postwar history for real, non-residential capital investment. Not only were the 2000s by far the weakest period but the tax cuts did not even curtail the secular slowdown in the growth of business structures. Rather the slowdown accelerated to a full decline”
This is pretty glaring and definitive. It shows that congress, by buying into the media and Neoliberal malarkey of a tax-cut based "fiscal cliff" could be engendering a real one that will haunt us for generations, as well as creating mammoth deficits.
The real conversation then, ought not be about the "fiscal cliff" but about taxes and why they are needed. Excluding Chile and Mexico, the United States raises less tax revenue, as a share of the economy, than every other industrial country. Can we live with this choice? Should we? If we do, it means that other downstream options will have to be severely circumscribed - including social insurance benefits (called "entitlements" by the Neoliberal press.)
Sadly,though the nation’s fiscal challenge has taken center stage in the presidential election campaign, raising more taxes from American families remains stubbornly off the table. It appears Americans - too many- inhabit a deluded landscape where they believe they can have their cake and eat it. Where they can get tax cuts every year, and still not be deprived of full Social Security or Medicare which they "paid into".
In addition, politicians trapped in this low tax memetic environment appear to endlessly pander to voters. President Obama is willing to accept higher taxes on families earning over $250,000 a year. But he is going nowhere near higher taxes on the middle class. And Mitt Romney and his vice-presidential pick, Paul Ryan, are moving decidedly in the opposite direction. Not only do they want to extend indefinitely the tax cuts passed by George W. Bush, but they are also calling for a piñata of additional ones, and would cut social spending in return.
When at last will Americans figure out that their choices cannot be maximized in this economic environment? There are "opportunity costs" whichever way they go. The best option they have now - in my opinion - is to press politicos to ignore the CBO report in its recesssion forecasts, and let us go over the hellacious and mythical - "fiscal cliff' - if for no other reason to put a dent in the deficits now, so austerity hawks won't use them later to kill social programs!
Yes, this is downward counterfactual thinking, but as author Schwartz observes (ibid.) we ought to be inspired to do more of it, not less. In other words, downward counterfactual thinking induces us to "be grateful for how well we've done this time" or what we have. If we have (currently) fairly decent future Social Security and Medicare benefits why on Earth would we risk them for cheesy tax cuts that only generate mammoth deficits?
The truth, my friends, is "fiscal cliff" or not, the politicians in Washington all know that we face a long-term fiscal crisis. By 2020, 70 million Americans are expected to be on Social Security, up from 45 million in 2000. The ranks on Medicare will swell to 64 million, up from 40 million in 2000. Virtually every economist knows that just maintaining Medicare and Medicaid benefits will require raising taxes on the middle class.
Now it's up to Americans to push policy in the direction of jettisoning ALL the tax cuts. Tell your politicos and congress critters to ignore the Neoliberal siren calls and do the right fiscal thing for once!