We see this at the local level in school district contract negotiations with teachers’ unions. The union asks for 10 percent annual pay increases; the school board offers 2 percent; they compromise at 6 percent. That may work for decades, but what happens when the local taxpayers go through a prolonged economic slowdown and the tax base in the district stagnates? There comes a breaking point where teacher compensation can’t rise as much as it used to, if at all, and maybe even retirement benefits have to be cut back because taxpayers simply can’t afford additional tax increases.
A similar dynamic plays out with the federal budget. The big spenders propose a large increase in spending (an increase above an assumed projected increase, i.e., the infamous “base line”); the opposition proposes a smaller increase; they compromise and spending continues on a relentless upward trajectory. There is a ratchet effect whereby total spending can only move in one direction: higher. But “trees don’t grow to the sky,” and eventually government spending produces so much accumulated debt that there isn’t enough wealth to tax or borrow to finance spending, so the central bank steps in with “quantitative easing” and financial manipulations. Eventually, the debt burden and the inflation of the monetary unit proceed to the point where they threaten the financial viability of not only the government but the entire economy—the net result of a succession of well-meaning, “fair”-minded compromises.
The pickle we are in today is excruciating. In the first place, the big spenders clearly won’t make any more than token compromises. President Obama came out of the election suddenly asking for tax hikes twice as large as he had requested earlier. Senate Majority Leader Harry Reid declared that Social Security was off the table. Since Reid has blown up Congress’ constitutional budget-making process for several years already, we know he isn’t bluffing. They are willing to drive off the fiscal cliff if necessary, because chaos and crisis provide them with the pretext for more government intervention and control, which is their ultimate goal.
If there is to be any meaningful compromise, the Republicans will be the ones who make it. Yet, if the GOP compromises by agreeing to raise taxes while not curbing runaway spending, the result will be slower economic growth and probably lower federal revenues. Nothing positive will have been accomplished and the government will continue careening toward an eventual financial crackup. We are told that reasonable people compromise, but if compromise leads to disaster, can it be a virtue?
Gridlock or compromise: Heads, Big Government wins; tails, “we, the people,” lose.