The Fiscal Mess: Death By A Thousand Cuts

Whomever came up with the term fiscal cliff to describe the expiration of the Bush tax cuts and the simultaneous sequester of across the board spending cuts did not do us any favors. I honestly had hoped we would get both. But that was never going to happen once it was framed as driving over a cliff. Who wants to do that?

Instead we got some small deal that essentially raises taxes on the highest earners and a kick the can approach on everything else. We are going to address our ridiculously high deficit in a series of crisis driven deadlines instead of the rational way, which is to sit down and hammer out a "grand bargain."

I do agree that cutting spending in some sort of brain dead across the board sequester is not ideal. And I also believe that phasing in our bad tasting but necessary fiscal medicine is better for the ecomony and so therefore a more prudent policy.

But here is the deal. We are spending way too much money in our federal goverment and we aren't bringing in enough revenue. The original grand bargain between Boehner and Obama which would have cut spending by $4.5 trillion over ten years and raised about half of that in new revenues over the same time period was the right idea. That would have gotten our annual deficit down to sub $500bn which still seems like a huge amount to me.

Now we are going to do the thing that every CEO tries to avoid, and that is death by a thousand cuts. It is demoralizing to everyone and painful to watch. And because our political system is so polarized and politicized, I can't imagine we will ever get to the $750bn in annual deficit reduction we will need to get our fiscal house in order.

I know that many in this community will point the finger at Obama and cite his ongoing lack of leadership (and his instinct to play politics) on this issue. I think that criticism is fair. But to some degree Obama is being driven to this place by an even worse behavior by the tea party wing of the Republican party who made a silly pledge to avoid raising taxes and now has to live up to it. The elder Bush (who I sure hope is feeling better) made a stupid pledge like that and lost out on a deserved second term as a result. When will the right wing of our government stop making taxes their third rail? And when will the left wing of our government understand that entitlements are a cancer growing inside this country that must be addressed now?

At times like this, I see the value in dictatorships (at least benevolent ones) and parliamentary systems. We need leadership that can address the issue head on and make the hard but necessary decisions to get our fiscal house in order. And we don't have that in this country. In either party. It sucks.


Comments (Archived):

  1. Richard

    Restart government with a MVP and come up with a way to fund it.

  2. JimHirshfield

    Politicians have long view perspective, say 225 years …back. as in referencing the constitution. But will only look forward max next election cycle. Seems upside down.

  3. Avi Deitcher

    Them’s dangerous words, Fred. Do you really want a dictator in charge? One thing I can guarantee: he won’t be looking out for the people’s best interests… but his/her own.

    1. fredwilson

      benevolent dictatorship

      1. Avi Deitcher

        Oxymoron, if ever there was one. I always liked the joke about military intelligence, but I have known some damn smart people in military intel.But dictatorships? Name me one that was benevolent.In a dictatorship, benevolent or otherwise, if Great Leader decided to overspend, and you wrote a blog post like this, you would be “disappeared”.

        1. Avi Deitcher

          Sorry if coming down a bit harsh. You and I are both old enough to remember when the bulk of the world was very unfree, and the horrors of the police states. I am grateful every day for having been born, grown up and lived under freedom, however imperfect.

          1. pointsnfigures

            In this hemisphere Panama seems to be the choice. World’s toll taker. No one wants to screw that up.

        2. Iggy Fanlo

          Singapore isn’t perfect but probably the closest real example

          1. Avi Deitcher

            Nowhere is perfect, because man (the race, not the gender) isn’t perfect. I am OK with not perfect. But how many of us will move to Singapore?

        3. fredwilson

          i think there have been many over the course of history. i will think about that one and get back to you

          1. Avi Deitcher

            Please do. Post here or email (you have mine). My view is pretty strong about this – Singapore is a great example, but of all the dictatorships over the last 100 years, Singapore is the lone possible exception outweighed by Cuba, Nicaragua, Soviet Union (and the entire Eastern Bloc), Fascist Italy, Nazi Germany, China, most of the Middle East and Africa, etc. etc. – but I am definitely open to new data.

          2. fredwilson

            there are certainly an order of magnitude more brutal dictatorships and benevolent ones

          3. Iggy Fanlo

            Being a Cuban refugee, I’d love to see it return to democracy, but my parents both readily admit that the the “average” Cuban is better off than he/she was before with Bautista, although I guess he was a dictator too.

          4. ShanaC

            i’m curious if you can think of one too. The closest I get is Catherine the Great, and she wasn’t all that benevolent.


        There’s no need to point the finger. All in the U.S. are at fault..We have a great opportunity (I like to look at everything as an opportunity) in front of us. It’s time for change!.Let’s reduce all government in the U.S. down to 10% of what it is. Reduce all taxes down to 10% flat and no loop holes..Then we start over because it’s a new world. Just like how you use to start a new investing venture each year Fred!

        1. Avi Deitcher

          For a completely radical view (not advocating it, just an interesting read), have you read “Unincorporated Man”?


            If you mean “The Unincorporated Man” by Dani Kollin?.No, I haven’t read that. But, I’ve always thought is would be good for everyone to be a business. We really don’t *need* to enslave people the way we do. I think it takes away their drive and determination. It was a good way to make robots of people during the industrial age. But now in the knowledge worker age I think it’s more destructive than anything.

          2. Avi Deitcher

            It is a worthwhile read, if only because it does a decent job having the characters show the pros/cons of the tax vs incorporation system. You come out of it in favour of the Man, as the authors intend (or maybe not?), but seeing the other side.

  4. Avi Deitcher

    Here’s the part I don’t get: it keeps being called a cliff, right? And I agree, the real driver towards US bankruptcy is entitlement spending, which is not even affected – e.g. see Mary Meeker’s latest report.But: the moment the cliff kicks in, tax rates are where they were in late 90s, and spending on most departments, AFAIK, is still, in nominal and real terms, well above where they were in the late 1990s (haven’t had the chance to check per capita basis).So all we do is go back to discretionary spending levels of still higher than the beloved late 90s, and tax policy that is equivalent to that period. So other than the non-addressed entitlements problem, why is it a “disastrous cliff”?

  5. howardlindzon

    Too small to fail….still the thesis for living and investing in 2013….for the few with the means, we need the bravado of ‘never too big to be attacked’

    1. William Mougayar

      …or let the big fail, but without bringing down the rest of it.

  6. Jeff Jenkins

    Having moved here from Canada I really thought that the balance of powers approach seemed like a good idea. Having lived in America for about 6 years now — and perhaps I just have a bad sample — it really seems like the Canadian style parliamentary system has a lot going for it.What tends to happen is that the party in power can largely do what they want, but they are held totally accountable for what is happening. And when power switches between parties some of the excesses of the preceding government are rolled back. So conservatives will tend to cut spending and the liberals (now the NDP) will tend to increase the social safety net.It’s not perfect by any means, but I think that there’s a lot to be said for having a level of accountability that is almost totally non-existent in the US right now.

    1. Avi Deitcher

      Jeff, I grew up in Canada, too. Actually, I did a term paper on Con Law in undergrad on the differences between the US and Canadian Constitutional systems, not that I remember too much of it.Can you explain why you feel there is a better balance in Canada than US?Separately, I do remember many years when Canada was the country that out-taxed and outspent, and had the miserable economy to show for it.

      1. Jeff Jenkins

        I think the balance is *worse* in Canada, because there are very few checks on the ruling party’s power. What it means is though is that those in power have to accept full responsibility for what happens on their watch. The system is not designed to preserve the status quo and, when it’s working well, progress will be made with power shifting between parties as they gain power and implement their agendas.When a parliamentary system works badly is when either the courts aren’t good (since they help fight corruption) or when one party is always in power. In Canada’s recent history the liberals had a long run for most of my childhood, but a corruption scandal eventually brought them down. The worst case is a place like Japan or Mexico where the same party was allowed to rule for many decades. That said, I think that could happen in America too and is more about the culture than the exact system.Another side benefit is that it seems to be much easier to have more than two parties when you aren’t in a presidential system. I don’t know the exact reason why that is.

        1. Avi Deitcher

          Hmm, so you are arguing that when there are enough checks to prevent abuse, but balance is tilted to the point that you cannot blame the other party (i.e. Parliamentary system), it becomes necessary to take responsibility? Very interesting.

          1. Jeff Jenkins

            Exactly. The situation it makes less common is one where legislators can say and do whatever is politically most helpful to them (even if it would be disastrous) because they’ll be checked by someone else and so they get the personal benefit without any responsibility.In America this is happening right now with the republican congress because their most extreme ideas would never be implemented, and generally happens whenever power is divided.In Canada a minority government can cause that situation to happen, and it did during the 2000s until the conservatives won a majority somewhat recently. I consoled my more left-leaning friends in family in Canada with the fact that the conservatives would have to take full responsibility and so would either moderate their positions or risk alienating Canadians and losing the next election.

          2. Avi Deitcher

            Fair enough. But my understanding is that the strongest years we have had – especially post-WWII – have been split government: Reagan presidency + Democratic Congress; Clinton presidency + Republican Congress.

    2. fredwilson


    3. ShanaC

      if we get too many parties, then you get other problems. See: Israel having gridlock problems as bad as American ones.

      1. Jeff Jenkins

        Definitely. Although I’ve wondered if that’s because they’re forced to make coalitions (to determine who is PM, who gets various cabinet positions, etc). Coalitions seem to be a feature of a lot of European parliaments, but they don’t exist in Canada. In Canada the party with a plurality becomes the party in power and they have to convince whichever parties they can to support each vote.(edit: and some votes, like on budgets are also “confidence” votes, meaning if they fail the government falls and an election is held. the minority will sometimes use confidence votes to force other parties to vote for something, since they alternative is an election)

        1. ShanaC

          correct. it becomes increasingly hard to get coalitions together once the size of the coalitions grows. European parliments have many parties, but not so many as to make it difficult for many countries to form a stable coalition. it is pseudo two or three party rule in a way.

  7. Iggy Fanlo

    So strange. I was just saying that last night that a benevolent dictatorship is needed when gridlock is the only thing we see. I doubt that anything meaningful will get done unless and until a true crisis is upon us, which I fear is sooner rather than later

  8. andyswan

    I just like the way that after TEN YEARS of hearing about the “Bush tax cuts for the rich”, we find out just how much the middle class would be hurt if they expire.

    1. fredwilson

      we should have just let them all expirebut once we called it a cliff we were hosed

      1. Iggy Fanlo

        It wasn’t a cliff, it was a launching pad

      2. andyswan

        All smoke and mirrors.

  9. Kevin Murphy

    The spending and taxing processes are broken. Our politicians horsetrade massive amounts of “constituent” benefits while giving no thought to the underlying issues affecting our nation as a whole. Prudent spending does not exist. Our nation exists because of a tax revolt. Ugly trends.

  10. William Mougayar

    Totally agreed. Stabilizing the patient that way sucks, while the disease is still eating it away. Both parties are avoiding dealing with the issues head-on, and are agreeing with what’s acceptable to each other instead of what’s better for the nation.Everybody,- I really urge you to read this excellent NYTimes Op-Ed by Nassim Taleb.”Stabilization Won’t Save Us”…

    1. Avi Deitcher

      Nice piece. How do you get there? The system was built to be federal, but over the last 80 years (roughly FDR), we have been centralizing more and more. Now not only are the incentives there… but everyone demands “Washington” fix it.

      1. William Mougayar

        And the startups analogy is interesting:”Consider the difference between Silicon Valley entrepreneurs, who are taught to “fail early and often,” and large corporations that leech off governments and demand bailouts when they’re in trouble on the pretext that they are too big to fail. Entrepreneurs don’t ask for bailouts, and their failures do not destabilize the economy as a whole.”

        1. Avi Deitcher

          Yep. It is always the large players.

  11. Brandon Burns

    Nate Silver pretty much sums up the problem in this post:…”Most members of the House now come from hyperpartisan districts where they face essentially no threat of losing their seat to the other party.”Anyone pointing a finger at Obama for not leading the charge against death by 1000 cuts is either not paying attention to the news or they’re just pathological Obama haters — he’s called for, and proposed several “grand plans,” including the one negotiated with Boehner; it was Boehner who miscalculated what his side of the aisle would go for, proposed a deal that didn’t have enough support, and then threw in the towel.But when you look at our red/blue makeup district by district, you can see how and why Boehner failed: the vast majority of House congressmen are from thoroughly red or thoroughly blue districts that don’t swing, and will usually vote them back into office without contest (unless its from someone of the same party in a primary). Thus, the incumbents do what they want.The opportunity for change lies in political education. Most of the problem congressmen are Tea Party backed, from districts where they are winning votes with rhetoric but, in practice, are implementing policies that do not help their constituents — these are districts with more “have nots” who support a no-tax rhetoric that doesn’t effect them one way or the other, because the taxes on their under $250k income were never going to go up anyway.But they don’t know this. They are moved by propaganda pamphlets filled with rhetoric, when they could be educated with the facts of what’s really behind the polices that are being debated before them.

    1. Iggy Fanlo

      With today’s media saturated world, and obama-team ability to crunch the numbers, they should be reaching out directly to constituents, rather than working the old political process. I believe (maybe hope) that there is a solution in that path

      1. Brandon Burns

        Obama is already doing this. He even did so with the cliff issue about 6 weeks ago when he asked people to send in their stories of what the “entitlement” programs mean to people — from education scholarships to medical help. He used that to take a lot of entitlements off the table, which pissed off the GOP and got little done… but keeps Obama in the good graces of the people.Next time, he needs to do a better job of using the power given to him by the people to actually get stuff passed.

        1. Iggy Fanlo

          I did see some Obama efforts on this score, but it paled in comparison to his efforts at reelection. I expect more from a leader of his caliber

    2. Brandon Burns

      Or, the Republican party can do a better job of recruiting quality candidates to dethrone the problem congressmen in the districts they represent. The Democratic party has always been much better at drafting solid players, with Elizabeth Warren in Mass. the latest example of how its done. They GOP needs to do the same: go cherry pick good folks and get them running for office.

      1. ShanaC

        That also requires some philosophical changes from within the party about what is “quality”. Right now, Tea Party as a philosophy still rules, which makes them the deciders of “quality”

    3. fredwilson

      what a great comment. you are totally rightmy partner Albert has an interesting take on it on his blog today

      1. Brandon Burns

        I completely agree with Albert. However, the change he highlights, that traditional jobs as we think of them today are on a permanent decline, won’t illicit a government response until it is clear what that response should be.Yes, due to technology it takes fewer people to make what we need as a population to live — but the people falling out of the workforce because of it, how will they make money? How will they be supported? Will new types of jobs be created? Will we go back to a system where there were simply fewer people in the workforce, like pre-WWII levels when women stayed home?No one knows. Albert has some theories, but not even he knows! Thus, the government can’t really usher in change when they don’t know what it looks like.Like Carnegie and Rockefeller before us, the entrepreneurs of the day will have to create the future first before the government can legislate around it.

    4. andyswan

      I am so sick of the idea that people shouldn’t care how much richer people get taxed because “it won’t effect them”What a greedy world view. Sick.Some people actually have real conviction about the role of government and how much power of confiscation it should have over ANY individual, regardless of whetherthey get more or less from the nanny.

      1. Avi Deitcher

        I did a simple analysis a few weeks back: if we taxed the rich at 100%, how “rich” would they have to be just to cover the current deficit, forget new entitlements and spending?Anyone wants the results, let me know.

        1. andyswan

          Of course we want to know

          1. Avi Deitcher

            At the risk of getting slammed……Ironically, I *never* write about politics in my blog, business only, despite the fact that almost 100% of comments come in the form of direct emails. I just like to keep it clean. I thought this was too… but you should see the emails… 🙂

      2. Brandon Burns

        That’s a fair criticism I take to heart.I’m bluer than the average bear, but I agree with a lot of the red rhetoric around the issue. Rubio’s GOP convention speech did a nice job of laying out the prospects of the American dream, and the negative signals sent to young people when they see prosperity “penalized.”I just don’t agree with the proposed scales. I don’t agree with even tax rates for everyone. Not even close. The bigger you are, the larger of a percentage you can and should contribute.”With great power comes great responsibility.”

        1. Iggy Fanlo

          Shouldn’t that mantle of responsibility be a choice not a mandated government tax? Don’t we all feel better when we voluntarily contribute rather than having resources taken?Even if we do have a progressive tax system, can we allow the government expenses from higher taxes be chosen by those that give it? Not unlike earmarking donations to an alma mater?

          1. Brandon Burns

            Then why not let everyone chose how much to pay in taxes?Because no one would pay any.But I’m a pessimist when it comes to human nature, so there’s that.

    5. Richard

      This is inside baseball stuff that misses the real issues.

      1. Brandon Burns

        Unfortunately, when it comes to government and politics, its the inside baseball stuff that has the biggest effect on the real issues.

    6. ShanaC

      we really need to stop the gerrymandering. I know it is legal, but it is stupid beyond belief that we allow this.

  12. Greg Kamstra

    It is certainly troubling. It is fun to blame congress, but we Americans are to blame as well. There’s a good reason they act like this, and that is that it’s the best way to get elected (be obstructionist, refuse to raise taxes and/or cut entitlements, etc). Until we figure out a way to reward different behavior, we’re unlikely to get different results.

  13. Alessandro Piol

    Welcome back and happy new year. I couldn’t agree with you more. Bring on the benevolent dictator!

    1. fredwilson

      Would you classify Berlusconi as one?

      1. Alessandro Piol

        As Avi pointed out in another comment, the risk with dictators is that they tend to inflate their own pockets. A benevolent dictator, in my view, is someone who has a plan and a vision to make a country better and will try to do it in the fairest way possible to solve problems and hopefully make the pain even enough that most people will be equally “unhappy”. And the dictatorship is necessary to cut through bureaucracy and politics and execute on a good plan. We all know it’s a utopian view, but it’s nice to think about what our “benevolent dictatorship” would look like.In the case of Berlusconi … not so. There probably was a vision of a better country there, somewhere at the beginning (Berlusconi’s first government 20 years ago came out of the corruption investigations that wiped out a good part of the political establishment in 1992-1993. It also was on the tail of a couple of serious terrorist attacks that killed two beloved magistrates who were fighting the mafia in Sicily. It was thought (in part) that a government on the right could be better equipped to fight the corruption that had mostly developed around the center-left coalition. It was also thought that some of the fiscal policies would be beneficial to grow the economy — I am simplifying a lot here …)The problem is that Berlusconi turned out to be as corrupt, if not more corrupt than his predecessors. One of the richest people in Italy, who also happens to be a media mogul with control of 3 out of 7 major TV networks, found himself controlling also the 3 “public”, government run networks, and practically strong control of what could be communicated to the masses. Control of media is important for a dictator, but he used it to his political or personal advantage. We know there were illegal business deals done by Berlusconi to favor his companies; laws were passed to keep him out of jail or to shorten the statute of limitations so that illegal things he may have done a few years earlier would not be prosecutable; election law was changed to favor his party; and there are many other examples of stuff that was done to favor Berlusconi or his family or his coalition and discredit his opponents (and I’m not even touching on sex scandals and Italy’s image abroad). And the media comes in because when you have some people pointing to these problems and others denying them or rationalizing them, the winner is … the one who shouts the loudest. And if you own the media it’s easier.Sorry for the lengthy, and frankly still superficial, answer. But regardless of whether you agree or disagree with Berulsconi’s party’s views (and I am, like many others, fiscally conservative and socially liberal, so I did not disagree with some of the more “serious” economic views) Berlusconi left the country in a sorrier state than when he picked it up, and the few valid views he may have had were completely derailed by his need to favor himself and his party. So, thanks to media control it was the closest thing to a dictatorship that we have seen since Mussolini, but it certainly was not benevolent.

        1. fredwilson

          That’s a great primer on recent Italian politics. Thanks!

    2. Jim Ritchie

      You’ll find your benevolent dictator riding a unicorn in the land of make believe under a sugar candy rainbow, good luck!

    3. JLM

      .I can’t start until next Thursday because I am trying to get my estate in order..

  14. Un cittadino preoccupato

    Fred,First, I’ve been a reader since 2005 – first time comment!I generally share your perspective.As a libertarian, I want a small and efficient government making as few decisions as possible – but making them when needed.Part of me appreciates the checks and balances (i.e. gridlock) of our political system that prevents an ideologue like Pres Obama from becoming a benevolent dictator.It deeply concerns me to think what President Obama would do on this issue if he had no opposition. Do we really think that the current administration is serious about cutting spending?Sure raise taxes (yea, EAT THE RICH!!), everyone who reads this message is smart enough to know that revenue isn’t the problem. Our government (across all parties) is playing divisive, small ball on this issue.The whole situation is sad and dangerous.

    1. fredwilson

      he did propose $4.5bn in spending cuts in the original grand bargain with Boehner. but you are right. we need checks and balances in government, no matter who is in charge.

    2. ShanaC

      First off, welcome.Secondly,I’m a paternalistic libertarian which semi-resolves the question of how big government should be – in your view, what is right sized government?

      1. Jim Ritchie

        I’ll answer that question. As a percentage of GDP spending should be capped at:Federal – 15%State – 5%Local – 5%Total – 25%This would bring us to 1950 levels.Actuals right now are more like:Federal – 22%State – 8-10%Local – 10-12%Total – 42%Before major expansion of Federal government in 1930’s (thanks FDR) local/state spending was typically 2x that of federal.You know you have a problem now that DC has passed Bay Area as metro region with highest per capital income.

        1. ShanaC

          Of course. (you do know asking newbies a question is my secret way of making them come back 🙂 )

  15. Joseph Scott

    We are spending way too much money in our federal goverment and we aren’t bringing in enough revenue.Very true, and sums up the high level issue nicely. It lacks context though.The total federal debt has gone up (instead of down) every year since 1957. I went over the numbers for every year since 1791 and listed every year the debt went down instead of up in the post History of the Federal Debt. Note that this is total federal debt, not individual budget deficits or surpluses (which is another story for another time).In the history of the United States we’ve never gone this long without reducing the total federal debt. Do we have the stomach to even accomplish that any more? And for an additional layer of context, given the fragile nature of current economic conditions is reducing the total federal debt really the most pressing issue right now?TL;DR – the last time the total federal debt went down instead of up Dwight D. Eisenhower was president.

    1. JLM

      .DDE was, of course, adequately prepared for the job having been a 5-star commander of the European theatre, a NATO commander, President of Columbia and a guy who knew how to frame a decision, drive a staff and to implement real plans.He balanced 8 straight budgets when that was simply expected, built the US nuclear arsenal, got us out of Korea and initiated the Interstate Highway system.He was intellectually equal to the task and experienced in being an executive..

      1. Jeffrey Hartmann

        It also helped that he had the top marginal income tax rate of 91%. Obviously the effective tax rate was lower, but people were more then happy to pay for growth. We have lost that, today no one wants to make the hard decisions, no one wants to invest in the future, and everyone wants a handout. Both sides are completely guilty here, liberal and conservative alike. We need to invest in big science, tax more, and focus on GROWTH. When the pie grows, we all win. The world is not a zero sum game, it never is but many people in power just do not realize this at all. I for one would be very happy to have a large tax bill if it meant that we would bring back our love for good old American innovation. Obviously without that, I don’t want my rate to go anywhere but down.For example, we had the technology to solve our country’s energy dependence problem in the 60’s and 70’s, but we lost our way and let politics and special interests kill it. We should all be driving nuclear ammonia fuel cell cars, and using much more advanced nuclear technology then the explosive steam bombs we have now. Imagine what the world would look like if we would have gone that route? Not sending roughly half a trillion dollars overseas generally to people who don’t like us would make the world a very different place.When we look at what it would really take to make us incredible again it is so damn cheap relative to everything else, and definitely worth the investment. We know how to do, lets just get off our collective asses and do it. That is the message that I want Congress to get, not this stupid infighting that gets us nowhere.

        1. JLM

          .One has to be very careful about trying to compare marginal tax rates over long temporal periods — as an example the Eisenhower tax rate of 91% (inherited from Harry Truman) has several important considerations:1. The Nation was still reeling from the impact of WWII and Korea and incomes were not growing yet.2. The top marginal rate was on income over $400,000 which in today’s dollars would have a FV of over $4,500,000.3. The population of the US was much smaller.4. Spending was much less.The national treasury was not deriving very much real revenue from those high brackets, so it really does not mean anything to tax them at high rates.Most real wealth was in the capital gains arena which was being taxed at 25%.The country is horribly mismanaged from a budgeting (we have none) perspective, from a spending perspective, from a revenue v debt perspective and from a tax policy perspective.All of this contributes to an anemic growth rate — fairly a recession recovery growth rate which should be substantially higher than a “normal” growth rate — and a job creation perspective.The entire tax issue is a strawman argument set up to divert attention from the real issues — GDP growth and job creation.Obviously if GDP is growing and jobs are increasing, the Treasury is reaping more income. This is the real challenge.There are some discrete decisions which have had a huge impact on some of these issues exacerbating their negative impact — the offshoring of blue collar jobs.As to energy policy, the quest for independence has not been a national focus — foreign energy has historically been cheaper to discover and produce than domestic energy.Right now the potential for a witch’s brew of nuclear, coal, natural gas, shale oil, crude coupled with more aggressive exploration and distribution would achieve independence in less than 10 years.We are nuts to allow a single drop of Canadian or Mexican oil to leave our hemisphere.Energy independence is also a core national defense strategy as we would not really care about the Mideast absent the presence of oil.Individual Congressmen, unfortunately, focus only on getting re-elected from their individual Districts or States and thus are not in a position to think from a national perspective.The explosion of influence of special interests driven by funding and lobbying is what has captured the national interest. It costs a lot less to rent a Congressman from, say Wyoming, than it does from New York, California or Texas.And, yet, their votes count the same.Congress, a portion of them anyway, has been listening and in some Districts the Tea Party sentiment has had an enormous impact on the elections.I am not suggesting that I personally do or do not support the Tea Party but when a sitting Texas Lt Gov running a comfortably funded campaign loses to a Tea Party candidate (Ted Cruz), one has to acknowledge that someone is listening.This is particularly illuminating given that it was Texas where the real fight was the Republican primary..

          1. Jeffrey Hartmann

            I understand talking about the marginal tax rate is quite difficult, but I guess my point is that the fiscal environment under DDE was quite different. He was in a much easier position to make things great, but don’t get me wrong he was a great man. Even though I consider myself liberal (slightly to the left of middle of the road) I absolutely love Eisenhower republicans (slightly to the right of middle of the road), I wish they still existed. If a significant portion of the republican party thought like DDE, we wouldn’t be in this position. Same could be said about the liberals by the way, the major parties in this country have completely lost their way and forgotten what made us great.We don’t have a budget because we have a kick the can attitude in Washington, noone wants to make hard decisions. Everyone is pussyfooting around and do not want their name associated with anything that has potential for big impact and real meaningful change.The fact that we don’t care about energy independence, scientific and engineering excellence, the fact that we fund stupidly expensive Military Industrial Complex welfare programs (These are the true entitlement programs, don’t let anyone fool you.) like Tokamak research and let scrappy and interesting projects from people like Alvin Winterburg, Robert Bussard’s Energy Matter Conversion Corporation before he died and the people continuing this work, Trialpha energy and even Eric Lerner’s Focus Fusion want for even basic capital at times is absolutely CRIMINAL. We have forgotten what made us great, I think this quote is really to the heart of the matter:”If we knew what it was we were doing, it would not be called research, would it?” – Albert EinsteinWe are letting ourselves be deluded that what we are fighting over really matters in the long term. Very shortly I completely believe we will have 30 and 40% unemployment to deal with, as automation really ramps up the need for workers are the most basic level of skill will all but be eliminated. My startup is automating things that I know have the potential of eventually eliminating jobs or changing them significantly, and I bet most of us here that are working on startups can say the same. Social programs are going to be a fact of life, if we don’t get our house in order and set things up so we can reinvest the wealth here, create completely new markets to sustain ourselves and focus on really educating our populace we are done. The fact that we don’t care about our future is the real fiscal cliff, this crap in congress even though it has potential to screw the economy is complete distraction and idiocy. We have completely missed the fsck’ing point. Blue collar jobs at home are worthless, because there aren’t going to be a large number of blue collar jobs in the near term future. The fact that we sent everything to China has allowed us to divest ourselves of expensive infrastructure that required lots of workers. Now that we can rebuild as we bring commerce home, we are going to need a whole lot less workers in completely new automated factories.-Jeff

          2. JLM

            .Can’t drink from the firehose but let me address one thing you have said which I think may be off the mark a bit.The issue of “blue collar” jobs is an interesting concept. Some jobs cannot be exported in any manner, they are geographically tethered to a particular location.One cannot sweep a warehouse in Greenville, SC in Beijing.We need to continue to produce jobs which are equal to the work force, mimic the skills of those on unemployment and thus available to do the work and which provide the opportunity to deliver OTJ training to enhance skills which may become archaic.This is even more important when one recognizes that the driver of such offshoring is actually moving the building to say, China, where lower employment standards and working conditions constitute the largest element of the purported “savings”.JLM

          3. William Carleton

            “We are nuts to allow a single drop of Canadian or Mexican oil to leave our hemisphere.” This really strikes me, JLM. I’m reading a biography of Theodore Roosevelt right now and as soon as I took in your observation, I immediately thought, of course, that is what a vigorous executive would see and marshal policy around. It would be a corollary to the Monroe Doctrine.

          4. JLM

            .This goes back to the nationalization of the Mexican oil industry in 1939 which confiscated the American interests in Mexico. Most of these interests were Texans.Because there had been a big German interest Mexico historically, the US was afraid to antagonize Mexico and risk having a German military force on our Southern border.One has to recall that we fought the Mexicans just prior to the American Civil War — in much the same way that the Nazis rehearsed some of their new doctrine in the Spanish Civil War.We also had the 1916-18 border incursions.This is why the Keystone pipeline deal was so important — national security implications are huge..

    2. Aaron Klein

      Clinton 98?

      1. Joseph Scott

        The post links to the sources – Historical Debt, – in 1998 the total debt still went up instead of down. If I missed something I’d be happy to correct the post.My understanding for the Clinton years was that there was a budget surplus, that is different than reducing the total federal debt. Either it wasn’t enough to actually reduce the total debt, or the surpluses were used for something else.

        1. JLM

          .The “budget” does not include inter- and intra-governmental flows. It is a subset of what we in business would call the income statement.Clinton had a budget surplus but not a positive cash flow as you have correctly noted.One other thing — the government does not recognize the difference between ordinary expenses and capital expenses thus the cost of an aircraft carrier is expensed as built rather than capitalized and depreciated.We could do much to make our financial model for government more clear by using a GAAP approach..

  16. Tom Evslin

    I think we actually would have been better off going over the “cliff” – then letting Congress undo the worst effects. That way they would be giving people stuff like lower taxes and some more spending(which they are good at) and not taking things away (which they are certainly not good at). The cliff meant taxes would go back to where they were under Clinton and discretionary spending only half way back. Wouldn’t have addressed entitlements which are, as you point out, a potentially catastrophic problem. I get back 3x in Medicare what I put in (although pay a higher than average premium). That doesn’t work for long.The “cliff” is also a marketing term for the concept that the whole economy depends on Washington. In fact it depends to a large degree on the individual action of entrepreneurs, inventors, investors, and consumers. Government CAN destroy the economy but it doesn’t make it. Couldn’t stimulate us out of recession (I was part of the effort to make that work) and I don’t think would’ve cliffed us back in. Even the CBO study, which did forecast a brief recession if we went over the cliff, forecast that the economy would actually be better off a year or so afterwards than if we didn’t go over the cliff. That part selectively gets left out.Putting off taking our medicine is really dumb.

    1. fredwilson

      so well said Tom. i really wish we had gone off the cliff too.

      1. Tom Evslin

        Maybe the House for the wrong reasons’ll do the right thing

        1. fredwilson

          it is strange that we are rooting for the house to do something really messed up, but i am

          1. JLM

            .The notion of checks and balances requires us to embrace the Dutch boy with his finger in the dike, the canary in the mine shaft, the 300 and the House Republicans.A bad idea held by a majority does not “become” a good idea.At this stage of the game, I would welcome a train wreck..

          2. William Mougayar

            – A bad idea held by a majority does not “become” a good idea.You’ve described mediocrity based on consensus, which seems to drive a lot of political decision-making these days,- not just in the US, but elsewhere too.

          3. LE

            “You’ve described mediocrity based on consensus”Exactly why dictatorship works sometimes. In companies as well. Camel is a horse by committee. Same reason SNL skits generally suck while the individual members projects that get built don’t.

          4. Luke Chamberlin

            One word: Superstar.

          5. LE

            Ok you got me there.(I was watching Portlandia last night…)

        2. ShanaC

          i think obama might be betting on it. House and Senate seem to be barely getting along these days. *sigh*

    2. JLM

      .If Clinton era tax rates are desirable should not Clinton era spending levels be equally attractive and desirable?Therein lies the problem.Clinton era tax rates funded Clinton era spending levels and the budget was quite close to being balanced.You may have to take all of the medicine at the same time to have the desired impact..

      1. Tom Evslin

        Spending should be rolled back to the Clinton level… but that would have to include entitlements as well and not just discretionary spending. Military spending was also less then.Even if were to revert all tax levels and spending programs to the year that the budget balanced under Clinton, it wouldn’t balance now. That balance occurred during the peak of a bubble so taxable income was high and social service demands relatively low. Also the population was younger and a greater percentage working. So, unfortunately, not even a rollback to the rates, service levels, and entitlement levels of those days gets us back in balance.So the problem really, really is hard. If strong growth is not part of the equation, the solutions are all unthinkable (the Greek problem). But a Happy New Year note is that cheaper (and cleaner energy), a revival of US manufacturing, and a still strong entrepreneurial spirit most lately manifested in the maker movement all together give hope that we can have strong growth. Then the solutions are just hard but not draconian.Happy New Year.

        1. JLM

          .It is however a start and a good start to boot.Clinton was enjoying the last embers of the Reagan era prosperity.But most importantly, he had Gingrich controlling not spending but only the rate of increase.As Clinton famously said: “The era of big government is over.”As Obama lives it: “You ain’t seen nothing yet.”.

          1. William Mougayar

            As Clinton famously said: “The era of big government is over.”He was so right. What happened to that in the meantime?Can you change the Constitution and allow him to run again?

          2. Aaron Klein

            I would take Bill Clinton back over this President any day of the week.

        2. ShanaC

          ah, hope.

        3. Jordan Thaeler

          Clinton did not balance the budget; he merely moved IOUs among federal trusts and racked up interest payments:

      2. Elia Freedman

        I appreciate the sentiment but it isn’t 1998 anymore. The economy isn’t growing at the same rate, there are more US citizens receiving services, and more people are retiring. Spending is higher.

        1. JLM

          .This is like making gumbo.You may have to change the recipe for the number of folks to be fed, but the basic ingredients and the end result — a warm glow from a belly full of spicy and tasty gumbo — is the same.Add a few more shrimp and some more andouille sausage but let’s get into the kitchen and make something good happen.Right now we are collectively pissing on each others’ ankles and pretending it’s raining. And that warm glow? It’s not from the gumbo..

          1. Elia Freedman

            I agree with you completely.

          2. William Mougayar

            Lol. I once had a most succulent crocodile gumbo in New Orleans in a totally inconspicuous little restaurant…back in the days.

        2. Aaron Klein

          And yet…I don’t recall people dying in the streets and grandmothers eating dog food at 1998 spending levels.

      3. pointsnfigures

        the multiplier effect of govt spending on gdp is 0. that means there would be no gdp affect on the sequester. we will slow the economy down with tax hikes. Idjuts.

    3. ShanaC

      Being that you are who you are, what role should government play in helping the economy move along?

      1. Tom Evslin

        Fair question.First, government has to do its own job well. That includes:1. Provision of some infrastructure. Our roads, bridges etc are deplorable. Part of the problem here is the same maze of originally well-meaning regulation which lets anyone impose a delay of any cost and duration on a project he or she doesn’t like. This regulatory morass meant, for example, that stimulus money couldn’t really be used to build infrastructure because 20 or 30 years (really) of regulatory proceedings are needed for a new project. 2. Regulation. Responsible regulation will let us take advantage of our vast energy resources, again for example. Regulation captured by special interests (see the telco industry) or regulation which allows endless frivolous delay by competitors or opponents holds us back. 3. Education. Judged by results.4. Enforcing the rule of law (in areas where there should be laws) 5. National defense. We do that pretty well.6. Helping the helpless7. And much else of course.And it has to not do what it shouldn’t be doing1. Bailing out banks or others who make bad investments. Capitalism doesn’t work in a too-big-to-fail economy and the only alternative is then stultifying regulation. Running bankruptcy courts is a good government function. 2. Deciding winners and losers among technologies and business models with the tax code, grants, or other “incentives”. Government money drives out private investment. 3. Conducting a war on drugs (time to declare defeat and collect the taxes) 4. Taxing the middle class to provide benefits for the middle class. We can provide the benefits we want more efficiently by spending our own money on them than by having government deciding what we want, taking our money, keeping some for “administration”, doling the rest back out to us for what it thinks we should want through politically-favored intermediaries.I wrote much more about this at

        1. Jim Ritchie

          I’d say that most of 1 (except federal highways and major airports), 3, 6, and 7 should be done at the local/state level. Lots of 2 and 4 as well. Federal government best at 5, which could also be hugely reduced. We could then reduce Federal spending to 15% of GDP, where it should be.

          1. JLM

            .These kind of basic decisions — what level of GDP should be targeted to support the Federal government — are what is missing in today’s debate.Instead of starting with a principled level of spending and then allocating spending from that base, we now add up the spending and conclude — well, we NEED more revenue.We have a crackhead spending problem..

          2. Dave W Baldwin

            Back to the trillion as a number problem- people just don’t know what it is. This is made bigger with a party that can’t communicate. If they would force pie charts or something on the media, it can make a difference. This is strengthened when they stick by the ‘facts’ and keep pushing. Unfortunately the mess is going to continue and we will not grow ourselves out.

          3. JLM

            .Dave, you are absolutely correct. Nobody can really fathom a trillion of anything..

          4. Dave W Baldwin

            If I can find time, I’ll sketch out lesson plan as mentioned- $1 or $10 bill equals trillion deficit and so on…

          5. Dave W Baldwin

            Also, to get anywhere we have to grow and growth of that magnitude expands the size of pie, which is great for all. Unfortunately that has remained out of message leaving us with finite to redistribute.

          6. Tom Evslin

            Jim:I don’t disagree. Actually was generalizing and talking about government at all levels at the same time.

        2. David Roman

          I just subscribed to your blog, Tom. I look forward to reading more of your posts!

          1. Tom Evslin

            David:Thanks. I’m flattered. Haven’t been posting much lately because in the throes of a new startup. I know that isn’t much of an excuse on AVC:-}Tom

          2. David Roman

            Awesome. Well, that’s probably the best excuse on AVC. Is your startup within the political realm?I’m yet to see a startup really tackle politics properly and taking into consideration all our brain power it’s frustrating to not see anything done. I had high hopes for Votizen but there efforts seem to be falling flat which is disappointing considering how well funded they were and the big names they had behind it.Other than an entire round the table culture change in Washington, the next best thing to tackle our current issues, is a well informed public that is capable of deciphering rhetoric so that it is no longer effective and politicians can legitimately be held accountable for the words that exit their mouth.The problem is that people just no longer care because politics for the most part have become synonymous with deceit. People don’t know who or what to believe– so they just tune out. I’m still waiting for a non-partisan startup that curates as many data points as possible and makes the most sense of it in the simplest terms possible. If we can get people to understand the basis in the most simplest of terms that should encourage the confidence to further care and look into and learn about the matter.Which is why i’d love to see more startups in the political realm and given your comments hope that you’d maybe you’d be taking on such an endeavor. Maybe?

          3. Tom Evslin

            My new business is far from the political realm – it is delivery of natural gas by truck to large users who are NOT located on a pipeline. This delivery lets these users take advantage of the cost and environmental benefits of natural gas and saves them from being crushed by competitors who are located on pipelines.After trying both, I’ve decided that I am much better at accomplishing change in the private sector than I am in the public sector. The company is NG Advantage LLC (www.

          4. Nick Grossman

            Same here . I am very interested in this question of what the political platform for the networked era (for lack of a better term) will look like. @tevslin:disqus I would be interested to hear how your thinking squares with the idea of the “peer progressive” approach (coined by author steven johnson). see

          5. David Roman

            I am beyond optimistic for what is to come.I’m unaware as to whether or not we will ever successfully get money out of politics– but significantly reducing the cost of campaigning is a start! And that’s what a peer progressive political platform would was attempting this but they are failing miserably. In order to create a political platform for the networked era you can’t just rely on people to create a profile and list political affiliation as well as voting history– which is what Votizen essentially is.To create a platform YOU NEED TO CREATE SOMETHING OF VALUE. Votizens approach isn’t adding any value to an end user– it’s simply wasting time.A product that would add value would be something that could function as like wikipedia for politics– where everything you could possibly need to know about incumbents or policies or ANYTHING concerning politics you could refer to this platform. It would have to be laid out in such a way where ANYONE could understand. It needs to be extraordinarily simple and I have everything all laid out in my mind of how it should look and function and go about it in the right way that I feel would optimize the likelihood of succeeding, but I am not in a position to execute on it…yet. It is def a vision of mine in the future, but I am only one man and my problem is I think like a rampant lunatic and everything is broken in my eyes and I see how everything could be fixed– but I could only work on so much at a time. It is the most frustrating thing– I am the most tortured, happiest soul LOLDo you have any intent on getting involved in the space?

    4. Un cittadino preoccupato

      Two posts in one day..I also thought “going over the cliff” was a desirable outcome.. A “reset” button that the country would digest..Cynically, I realized, we as a country need to be reminded of how dependent we are of government action (or inaction) and how last minute political heroics will save us from doom!

  17. Johan J.

    I am sorry Fred, but when a nation defines itself as a leader of the civilized world, has one of the lowest tax rates of this civilized world, but also the highest poor population of this world, shouldn’t the US be ashamed of itself?How long will this attitude “If you are poor it is at your own fault” still hold? Maybe this was true when everybody arrived 200 years ago, with nothing on them except some clothes. Now the migration between income classes more and more halted, and the really rich have found ways to pay on absolute terms less than the average american.There will be a day, like we had a year ago in the middle east, where the poor crowd will pick up baseball bat, and demand some justice.I’d prefer not to be around by then.If China will be the new world leader remains to be seen, because of their social injustice. Same argument is true for the US. If China won’t be new world leader because of social unrest, why will you still be? You’ve made enough enemies in the world. At the moment you are weak, they will strike, and emphasize the stress you are already in.PS: This is not supposed to be an anti-US post. But just watching the discussion from Rhineland perspective, this really makes no sense.

    1. Jim Ritchie

      “the highest poor population of this world, shouldn’t the US be ashamed of itself?”I can not answer for Fred, but in my opinion NO. I have traveled extensively around the world and I also have been involved in a number of think tank and charitable organizations that deal with poverty here so I think I have a decent grasp of the issues.The “poor” in the US is a very complex, multi-faceted issue and is much more complex than in most European countries for a variety of historical (e.g. slavery), cultural reasons (e.g. large unwed single mother population), and policy reasons (e.g. we built large public housing projects in 60s-70s which created an institutionalized “poverty community”).Another factor to consider is how poverty is measured. In the US you can be labeled as “poor”, but still live in a large house, own 3 TVs and other appliances, have access to state of the art medical care, and have plenty of food to eat, probably too much so. This standard of living is as high as many middle class in other industrialized nations. I’ll also never forget when I met with an entrepreneur on his first visit from India to Silicon Valley back in the early 1990s and he said to me “the US must be truly a rich country as even your poor are overweight”, so sad, but true.In addition, I believe some of your premises to be false or misguided. including “How long will this attitude “If you are poor it is at your own fault” still hold?””I don’t think we blame people for being poor. The fact of the matter is there will always be poor, always have been and always will be. What we can offer is the freedom for someone to pull themselves up from their own bootstraps if they have the drive to do so. Access to the right kind of education is a big part of this as well as attempting to instill a culture that values learning and offering access to mentors that can help an individual get on the right path.”Now the migration between income classes more and more halted, and the really rich have found ways to pay on absolute terms less than the average american.”It is true that richest of the rich are getting richer in the US. However, they are paying more in taxes on an absolute basis. Also, I don’t believe it to be true that is harder to get yourself out of poverty in the US. In fact, I believe it to be much easier than it was 50 or even 20 years ago for a variety of reasons.P.S .My wife’s first language was German as her mother immigrated to the US when she was a teenager. We have visited her family a number of times south of Munich and greatly enjoy that area.

      1. Johan J.

        Thanks for a long reply, i will try to continue :). I will try to point you to some statistics which will defend my premises.First: “Our poor aren’t poor”…Your median income is generally higher, but not that much.(BTW: MacDonalds is cheaper than vegetables.)Second: Income migration halted:…Page 15 shows how 41% borne in the lowest 20% will stay there. I do not have access to a historical chart.Final point, you are right about the taxes. I misunderstood the discussion from Buffet where he talked about tax rates, and combined these with for example the Romney tricks and other technicalities.Well Germany is a beautiful place, it just isn’t my country ;).

  18. Dave

    I don’t think dictatorship, benevolent or not, is ever a real answer because it never stays benevolent. But this circus is ludicrous. It is even more clear than usual to me as I sit to do some general 2013 planning/goal setting for both personal and business purposes. As I try to set some personal financial goals, I realize I cannot calculate any of my normal key metrics–charitable contributions, allocations for major spending decisions, kids college fund contributions, income, etc.–because I have no idea what my taxes were for 2012 and even less idea what they will be for 2013 and most of my normal calculations take taxes into account. Normally on January 1, I can plug most of these things into a spreadsheet and have a decent idea of how to plan for the year, at least for the first quarter or first half of the year. This year, no clue.Unfortunately, what this means is that I’ll hold off on anything important until this mess starts to settle out. My bills will get paid, charitable contributions will get made but at a lower rate, I’ll go slow on investments, I won’t buy anything big, etc. I’m fine paying more taxes and voted for people who I knew would raise my taxes, but this idiocy of having no plan makes me disheartened.The consequences for my software business are more severe and unpredictable. We have thousands of paying business customers. Most of our customers are small and medium sized businesses with principals who likely operate as partnerships or s-corps. This means all of those businesses likely do not quite know what their tax burden is for last year nor do they understand what their tax burden is for this year, other than that it will be higher. My guess is that they will buy less of our products as they hold off and wait for this to come into view. It will make our Q1 hard to achieve so we will need to go slow on investments. Seems like we will at best see a flat economy but likely a slowdown of some kind.PS. I find all the phase outs of exemptions and deductions insulting to people’s intelligence. Why not just raise tax rates and be upfront about it? That is the effect of those phase outs but it always feels sneaky to me, even sneakier than the rest of the tax code. The impact of phase outs is also often more subtle and hard to model so it tends to bite people unexpectedly.

  19. JLM

    .The issue of taxes and tax rates and who pays them is not the real problem. It is a total smoke screen. A strawman set on fire to draw a crowd. Hell, they’re having pep rallies about tax rates.The real problem is the economy, growth and job creation.If we had 5% growth — the average post recession rate of growth for the last 5 major recessions — in four years, we work ourselves out of the problem completely.Economic growth coupled with just the most basic control of spending changes the slope of two curves which will meet in four years if done correctly..

    1. Dave

      Very well said JLM. Growth is the key. If you include entitlement reform in the concept of basic spending control, then I’d agree with you. Entitlement reform is vital. Any system where they count “cuts” as slowing the rate of growth, not a cut–which is how our legislators seem to do math–is not a controlled system.

      1. JLM

        .Entitlement reform is so easy a Prom Queen could get it done before her dress was whisked off.1. Increase the eligibility age to mirror heightened working period and life expectancy and quality of life.2. Means test benefits — they are already taxed.3. Provide an “opt out” provision for young folks and allow them to use private retirement and medical accounts like an IRA is administered.4. If you opt out, you still pay a very modest payroll tax rate — say 1.5% — and the employer still pays approximately 7%. This provides increased funding for a decreasing pool.5. Locate Al Gore’s lockbox and stop commingling SS and Medicare $$$ with the general fund.6. Once the funds are no longer commingled, invest them even if in Treasuries but get a real rate of return on them.For all politicians involved, plan for your retirement because you will NOT get re-elected when you do this but you will have re-discovered your manhood and that will be good.The Prom Queen’s dress is still just being unzipped..

        1. ShanaC

          I’m not sure most young people know how to handle an IRA. And most young people carry too much debt for an IRA

          1. JLM

            .Young people are smart as whips but they have been led to believe they are “entitled” — the Me Generation Millenials.Guess what? You are not entitled to anything other than putting your own feet in the starting blocks.If you cannot manage an IRA, then learn how..

          2. Aaron Klein

            I carry a lot of debt and am in a startup and I still have an IRA. I put a pitiful amount in it every month, but everyone should have one.If you can’t figure out how to invest it, use Riskalyze or if you’re <40, just buy SPY and forget it.

          3. ShanaC

            on my to do list.

        2. fredwilson

          I LOVE this. Totally and completely love it.

          1. Guest

            .BTW, here is the Prom Queen after the entitlements have been reformed.Very tacky, I know..

          2. ShanaC

            Super tacky…i’m a bit ewwed out for this site.

          3. Nick Grossman

            this line is precious: “For all politicians involved, plan for your retirement because you will NOT get re-elected when you do this but you will have re-discovered your manhood and that will be good.”

          4. fredwilson

            JLM is the poet of this comment thread community

        3. David Roman

          The “opt out” provision would DEFINITELY require a minimum age which would preferably be an age where arrogance doesn’t factor in and one could coherently address the situation realistically (otherwise you know what’ll happen). What age would you say that is?

        4. LE

          “Provide an “opt out” provision for young folks and allow them to use private retirement and medical accounts like an IRA is administered.”Unfortunately with things that we have no stick with (like saying if you abuse your body and don’t stay healthy we won’t treat you at the hospital -as if..) you have to protect people from their folly.Or we all end up paying for someone’s wrong moves. Like we are already doing.Did you get the latest story about the people who want to adopt Russian orphans that can’t because of political issues? Turns out many of those orphan have vast medical problems. I’m sure the adoptive families aren’t going to pick up the tab for all that medical care, right? So it then becomes all of our responsibility. Because money just grows on trees and because a child is suffering somewhere in the world and because a family here wants to raise children we will all have to foot the bill for all that kindness. (This is a dramatization so everyone can put away the pitchforks. I don’t really know how ill the children are or how much medical care they will actually need.)…These are children with complicated diagnoses, really complicated. They are very ill childrenNow of course if you want to make socking away money somehow mandatory and simply give people a choice of what to do with it that’s fine. Or is it? Remember all the talk a few years ago (before the crash) on how Wall Street outperformed whatever the government could provide in retirement and we should allow people to invest in that with their social security money? How is it do you think that the average person shopping at Walmart is going to know the right thing to do in order to insure they have money for retirement and it’s not your problem?

    2. ShanaC

      yes, though ben bernake is yelling with his inflation number that we need to be more stimulating.

  20. kidmercury

    They are NEVER going to work out a real deal that changes anything. Even if they had gone over the overhyped cliff, the terms for doing so are not sufficiently significant. This is a situation where you need a real turnaround CEO who makes big changes, not stupid little tweaks that the media overhypes.The good news is that they are just tossing out money which will create a transfer of wealth all over the place — more bubbles on the way. This is also the bad news for those not paying attention.

  21. ShanaC

    The big problem is that there seems to be two different philosophies about how to go about this (thanks Grover Norquestist for locking the republicans into a philosophical tax problem for years). Further, it massively bothers me that economic data and thinking, historical data and thinking, sociological data and thinking, and psychological data and thinking is not seeping into policy making.EG: There is absolutely nothing wrong with have a social net for medicine. There is something wrong with fee for service social net, since it doesn’t push for better behaviorThere is something wrong with RD in the military when it comes to planes, there is nothing wrong with RD for cyber warfare. (unless there is some massive technological breakthroughs involving planes. but I don’t hear of very many)I don’t mind the government being large in a network way. I do mind the fact that it isn’t nimble. Parts of the government need to shrink. Other parts actually need to grow. I do mind the fact that the government seems to stop being representative of the vast majority of people who voted them in, which is causing social stratification problems. I do mind that the government isn’t really preparing for an aging population with both R and D spending and figuring out how to make sure the countryAND its citizens doesn’t fall into poverty when a bunch of people retire. And I really mind the fact that power balances between countries and nonstate entities are shifting (this doesn’t mean american is any less exceptional, it just means power is shifting)

  22. jason wright

    so which public relations/ lobbyist coined “cliff” and put it out there?

  23. Tom Labus

    Paul Krugman still considers “the mess” a growth problem rather than a fiscal one. We need growth and we need it now.Part of any fiscal deal must contain this element for our near and long term survival as a legit entity.The Grand Bargain was undermined for purely political reasons, no win for the president in an election year.This all seems like some bizarre fantasy to me at this point but what is real is that our finances are in the hands of fools.

    1. JLM

      .I agree with you more than you agree with yourself. Well played.Taking money from the private sector and putting it in the hands of the government and thereby incurring 26% shrinkage to collect and 2% lost to corruption, fraud, waste and theft is going to shrink the economy further..

      1. Tom Labus

        The issue is retrieving/reclaiming swamp land that was once a great forest.

        1. JLM

          .Love the analogy, well played.As a de-frocked civil engineer, I am firing up the big diggers to construct the ditches right now. I will have those swamp waters flowing by this time tom’w. But to where?Thanks, Tom..

    2. LE

      “Paul Krugman still considers “the mess” a growth problem rather than a fiscal one. We need growth and we need it now.”Krugman is an accomplished well respected academic economist who most likely has never run as much as a lemonade stand and doesn’t clearly understand the devil is in the details. Same type of person that would tell you to “hire a good lawyer” or “buy low and sell high” or something stupid like that. It’s easy to stand back and give general advice without taking into account all the things that are necessary for something to actually happen. This type of thinking reminds me of the genius who got the idea to give out free gas to the Sandy victims and didn’t understand enough about human nature to understand the pandemonium that would ensue. Or to anticpate and solve a relatively simple problem of getting generators so stations with gas could pump it. Etc.

  24. William Mougayar

    It is obvious from this post, and level-headed people would agree that the solution is not going to come from either political parties, nor the government itself. It’s a dead-end issue.The solution has to come from “third voices”,- the voices of reason. Fred alluded to this before the elections when wishing there were an “independent candidate” process that had legs. The government, like General Motors is the one that’s too big to fail, and bailout after bailout is just going to delay the ticking bomb from exploding.Not just in the context of the US, but elsewhere too, as it has been the struggle of other nations that are trying to liberate themselves from bad governments. So the common theme is government. Bad governments, too big governments, ineffective governments, corrupt governments,- they run the flavour spectrum.So I’m interested in learning (and discussing)- how do third voices emerge and make real change happen? How can change come from the outside and be effective at it?

  25. Jeff Perlman

    Great post Fred. I am very distressed at what passes for political discourse and leadership in America. And I worry about the real impact this is having on our economy and our future. In one way, you can’t help but marvel at the abuse this country takes while still remaining a pre-eminent nation in terms of innovation and entrepreneurship. But you also can’t help but imagine how much more we’d be able to accomplish if we had better leadership and a functioning system of governance. We must cut where we must so we can invest where we must.

  26. JLM

    .The Fiscal Cliff is pure unadultered bullshit. It is all political.Consider first the following frame of reference —1. our government has not passed a budget in going on 4 years;2. the Sec Treas thinks that the Executive Branch should castrate the legislative branch and get an unlimited debt ceiling;3. there is no basic financial management framework in place, not even equivalent to your personal financial management tools and constraints; and,4. we are spending at unprecedented levels with no plan in place to curtail that.Face it, we are financial crackheads and adolescent “feel good” morons. These are the idiots we are counting on to solve what has now become a modestly larger problem.The Fiscal Cliff was created by the last debt ceiling authorization and was the product of the PresidentIt was the President who injected “sequestration” into the mix as a solution and ensured that it would not be faced until AFTER the election. He made the can that is now being kicked down the road yet again.He and the Supercommittee — remember the bi-partisan Supercommittee? — had 18 months and the collective wisdom of the Simpson-Bowles Commission (Presdent’s Commission on Fiscal Responsibility and Reform) to solve this problem.The President enacted not one recommendation of his own Commission on Fiscal Responsibility and Reform. Not one.And the problem is really not that big. Sequestration implies a $55B cut in Defense spending from a budget of approximately $650B and a $55B cut in non-Defense discretionary spending from a budget of approximately $502B.For an excellent discussion of real numbers link here.…We are talking about going back to 2010 levels of spending. That is not a barbed wire enema by any stretch of the imagination.The other things involved other than income tax rates are as follows:Capital gains and dividends tax rates;Estate tax exemption and tax rates;AMT fix;Doc fix;Obamacare taxes phase in — the real elephant in the room in my view;The payroll tax holiday;Some bio-fuel tax credits;Entitlement reform; and,The debt ceiling.The President campaigned on a promise of $3 in spending cuts for every $1 of revenue enhancement or tax increases. I am unable to identify a single spending cut proposed by the President. Can you identify any that I may have missed?We have a very simple budgeting and spending problem. That is the real problem not taxes.What we really have is a leadership and integrity problem..

    1. Brandon

      Well stated JLM.

    2. Dave W Baldwin

      Goes with my point to @tevslin:disqus re communication. Simply have every memeber in the House (there should be a few Dems) ask the question on TV, “Mr. President(?), where are the cuts?” with the beginning being a shot of the Rep saying question switching to still with pic of President and quote of $3 cut to $1 tax. These can go viral on the web.Then you back Obama into corner.

    3. Peter Beddows

      Well said @JLM:disqus. Totally agree.

    4. Perry Obsternoffan

      When Obama proposes a “balanced approach” they are in the form of tax now cuts later (let’s quit calling it revenue and start calling it what it is, confiscation )Like 12 years later, at which point they will have been long forgotten and would never be made just as the Cuts were never made under the first Bush (also promised by the Dem’s)Let’s not forget the basic math here either. Base line budgeting means that when they say cuts what they are really promising is a reduction in the rate of increase, not any real reduction in overall spending or limiting government.I don’t have much love for the GOP because the majority of them seem to be as fundamentally opposed to actually shrinking the government as the Dem’s, but the Dem’s bring government expansion to a whole new level that is breath taking if you look at it objectively.Obama as far as I can tell has never made anything other than the promise of making token cuts (oh look we cut 5 million out “theoretically” by removing this odd regulation that is covered by 20 other similar regulations)Political theater and nothing more.

    5. Aaron Klein

      Exactly right. The interesting thing is where we go from here, because the President just had the best day of his second term. Taxes are done, the rich are paying their “fair share” and now he gets to spend four years fixing a spending crisis.And he just took his best tool – incentivizing economic growth – off the table.

  27. RichardF

    Happy New Year!

  28. Elia Freedman

    I did a lot of reading this past week and one of the best political articles I read was this one: http://www.the-american-int…Very interesting thought piece. In short, Mead argues that we don’t really have “conservatives” and “liberals”, we instead are all liberals but our two parties are actually both conservative, longing for a past that can’t be recovered. The Democrats long for a liberal era (he calls it version 4.1) that favored big companies, unions, defined pensions and government regulation. Republicans long for liberal era 3.0, which favored an agrarian society that favored white men over women and minorities.Mead argues that the US was founded on a progression of liberal ideals. Each successive generation of liberals was appropriate for its time and was eclipsed by the next liberal generation. He argues that we have now exhausted the latest iteration, 4.1. It is time for liberalism 5.0.This makes a lot of sense to me, and also makes sense for why a growing number of Americans no longer identify themselves with either party, even if registered with a party. Us “independents” are looking for a 5.0 leader and our discontent with the current government, both sides, is a bi-product of their backwards-ness.

    1. fredwilson

      Thanks for posting this. I will read it today

  29. Ken Galpin

    Hi Fred,As a Canadian watching the antics in DC these days I am reminded of the mess we were in here in Canada in the 80’s. Huge per capita deficit and our of control government debt. Our situation was even more precarious as a very large portion of our national debt at that time was not denominated in our own currency as yours is. This currency exposure made us doubly vulnerable. Despite mounting debt at the time we had a national attitude of entitlement that was at least as bad as you are experiencing if not worse. It took exceeding courage by our political leaders to introduce a national sales tax of around 6% at the time. Every economist was announcing that this tax would kill the economy but the palimentary majority enjoyed by the government at the time pushed it through. Then a funny thing happened over the next twenty years… we eliminated the deficit relatively quickly and started paying down our national debt. (though this has reversed marginally and temporarily due to last fiscal crisis intervention). The most interesting fact is that, the Canadian public having paid the price over the past 25 years to wrestle this debt beast have no desire now to return to the kind of prolifigate spending patterns that got us in the previous mess. Oh and yes. we did this even while supporting a national health care system that takes about 40 cents out out of every tax dollar. So yes, it can be done and attitudes can be changed but it does take leadership and our parlimentary system allowed us to avoid the gridlock you are now experiencing.

  30. EmilSt

    Some congressmen said this days, something is very wrong when the biggest threat to our economy is our congress.The basic problem is the whole system of bi partisan democracy and the voting process. They are pushing the society in two antagonated camps continually. Towards two dogmas. That can be just a little bit better then one dogma.The whole democratic system should be intristicly designed to untite and not divide society. To look for and promote thousands of common interests between thousands of different “minorities” in the society. Embracing new technologies is the solution.

  31. Dave Pinsen

    Republicans had already agreed to raise tax revenues (by limiting deductions for higher earners), just not to raise tax rates (then they caved on that, and agreed to raise rates too, for those making over $400k). They already touched that alleged third rail. What the Republicans initially proposed is closer to what President Obama’s own Bowles-Simpson commission suggested: flatter, broader-based taxes, with lower top rates, but fewer deductions.President Obama has shown no similar willingness to make serious compromises. It’s more important to him to raise tax rates on the upper middle class (let’s be honest — whatever happens isn’t going to materially affect what Buffett pays next year) than it is to try to rein in the unprecedented deficits he’s presided over since he was elected. With an obsequious press (giggling at his flubbed jokes during his New Year’s Eve press conference), and his last election behind him, there is little pressure on him to make any tough decisions now. Only the much-maligned debt limit offers will offer any real pressure.

  32. internet_commentator13

    I’m not sure the right lense is to blame Obama and the Tea Party here. The government is responsive to the people. Brooks, in his op-ed today points out that:”The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money. Many voters have decided they like spending a lot on themselves and pushing costs onto their children and grandchildren. They have decided they like borrowing up to $1 trillion a year for tax credits, disability payments, defense contracts and the rest.”It’s going to be hard to stop this train. Just like it would have been hard to stop the unsustainable mortgage housing boom and bust. Everyone likes free money especially when the costs are hidden from them. If there is a fundamental problem like there was in the housing bust, the tipping point here won’t be Bear Stearns but the US Dollar in this context.One solution1) As this drags on (it could be years of dealing with this fundamental imbalance), some patriots (to avoid a crisis and pain) should mobilize a non partisan PR campaign to educate the US public on the problem. I bet billions of dollars could be raised for the effort. Wouldn’t that be a better way to spend all that so called PAC money? The people are just so busy with their own lives, but when it comes down to it given the right facts and some leadership they will do the right thing.Anways, it’s the people. Not our leaders. The people elect and choose, give permission and insist on things, express outrage, or give thanks. They run the show. And the people are generally good and responsible. And we are the people. Democracy has so much promise and potential, we can fix this if we’re creative and courageous enough. I don’t think we should wait for Obama or Boehner, or the Tea Party to fix it for us.

  33. JLM

    .In following this discussion today, there is a lot of great thinking and just a splash of partisan blame game at work. That’s OK w me.But what is not being said is that there are real world exemplars which demonstrate the different outcomes that are available as a result of different philosophies of governance.Take California v Texas. A very good example because they are both included in the 15 largest economies in the world if they were independent countries.Texas is aflame with job creation, a balanced budget and a smidgen of growth.California is aflame and over 1MM Californians have moved to Texas in the last 5 years.So you have to ask yourself — why? Why?It has to do almost solely with the philosophy of governance employed by each state. Taxes, regulatory environment, regulations, courts, politics, right to work.I will not proselytize for either state but obviously I think Texas is playing trump in this game.Which philosophy of governance is closer to the Obama administration and are they suffering the same fate?Governing philosophy does matter..

  34. jason wright

    what is the atomic unit of dictatorship?

    1. kidmercury

      the executive order. check out how many obama has issued, as well as the rising trend across presidents/dictators.

      1. pointsnfigures

        they trickled out under Clinton, expanded under Bush, and it’s a blow out with Obama.

  35. JLM

    .Just when you thought Stupid could not get Stupider, you get this.http://www.washingtontimes….Stupid just got Stupider..

  36. pointsnfigures

    Fred, I agree. No leadership of principle at all. I betcha even you as a Democrat and me as a libertarian could simultaneously agree on the problems, logically hammer out an answer and most people would be okay with it. Except the special interests.The Republicans were schmucks. The Democrats were nincompoops. Merde. (for those of you that know a little French, see what I did there)

  37. Evan

    Obama’s “fiscal cliff” deal actually increases the federal debt by 4 trillion, per the CBO. $4,000,000,000,000.00. That’s a few zeroes.

  38. kidmercury

    the future model of governance is the same as the old school model of tribes with chiefs. dictatorships are great, but they don’t scale.

  39. Luke Chamberlin

    Every time I read about the fiscal cliff I think of Toonces the Driving Cat.

  40. David Roman

    I get this sense that I’m on the younger end of this community so I may potentially receive tremendous amounts of hate for this comment– but I really think what it comes down to is that executing on everything we’re all proposing is possible but would require an entire culture change. And the only way things are going to change to the extent that is needed is an entire round the table change of leadership. By change of leadership, I mean generation wise.I’m sorry if I’ve offended anyone– but the truth remains until there is a massive culture change we will continue to see a lot of the same nonsense– overly complicated and un-effective policies.

    1. LE

      I think as you get older you will find that things are the way they are for a reason. People might start out one way (Obama back in “Change” days is a good example) and they will all end up in the same place playing the same games.So even if you could hit a button and replace everyone with a younger (less experienced, um, wet behind the ears generation) it wouldn’t work. And what is the mechanism that is going to make that happen anyway?I’ll tell you an experience that I had way back in the 90’s with ICANN. There was a registrar constituency that was trying to get certain things done. I agreed with some of the things and disagreed with some of the things they were doing. But I decided that in order to push through what I thought was important I would not automatically agree even with points that I agreed with. So the head of constituency called me and spent maybe 10 minutes trying to get my agreement on something that I already wanted. And in return, I got something else I wanted! Wasn’t that easy! And it felt good. I don’t play sports at all or gamble but I play this game very well. So do politicians who do this every day! Do you think people are going to give up what is human nature! No way. Why would they?As you get older you will find that life isn’t fair at all (unless of course you are born with certain huge advantages). And you have to work every angle that you can. Or you will end up on the shorter end of the stick begging for the government to come rescue you from the storm when it hits your place in Staten Island.To quote you now:”I’m sorry if I’ve offended anyone– but the truth remains”

      1. David Roman

        Maybe I am naive and maybe sometimes my thoughts are potentially not possible– but i’ve found that if the conversation is started from a pure utopian standpoint, the eventual realistic solution will be as much utopian as possible and that’s all that I could ask for.As much as people love to put down my generation, there is in fact many incredibly sharp young individuals that the incumbent generation has raised and should be proud of. There are so many of us that are passionate about the problems in this country and are coherent to the fact that many of these problems are the result of subjectivity or prioritizing political agenda and special interest money. We don’t have all the answers, but we’re passionate, coherent to the problem and maybe most importantly– naive to a certain extent and i’d be lying if I told you I can’t wait till the day we take the helm. Through adversity leaders arise and we’ve been exposed to quite a deal of adversity from a young age meaning many of us started to naturally be bred leaders from a young age and maybe we’ll never be entirely ready– but we’re hungry, willing and will ultimately prove to be capable.I know maybe more so than most my age that life isn’t fair. I’m the last of 7 children. I was raised with our oven heating the house during the winter time. I was raised boiling water and dumping it in the tub and waiting for it to cool to avert cold showers mid-winter. I was raised renting free movies from the library because we’d go years at a time without cable. I didn’t go to college– I’ve had to support myself since I was 14. From a stereotyped societal standard, from the outside looking in– EVERY which way you can look at it I was be deemed to fail. But, I’m a fighter. My parent’s maybe weren’t able to support me financially, but somehow, some way they instilled the right values for me to build upon and provide the opportunities for my children that they weren’t able to provide for me and that’s really all I could ask for and am beyond thankful for that!But, what KILLS me LE is that I was fortunate enough to be able to fight out of that but for every 1 of me, I represent thousands that never do and will never get the opportunity to live life the way it should be because of the way they’ve been molded by their environment from a young age that they had no control of.I was discussing this the other day with someone and my statement then was regarding the nuance of equal opportunity and equal ability was that we all have equal opportunity to a hammer, wood and nails to build a box but do we have an equal ability? Some may have been handed industrialized hammers with custom grips molded to perfectly fit their hands while others were handed two pieces of steel welded together without a grip to hold onto. Some may have been handed the highest quality, finest wood while other were handed the unevenly cut scraps from low grade wood. Some were handed brightly shining nails while others were handed worn threw, bent nails. They have equal opportunity to build a box but they don’t have equal ability to do so.And i’m sorry but to justify this reality by saying life isn’t fair isn’t an answer that I can settle for. As someone who’s fought through this and ALMOST has come out the other end successful, there are preventative measures that as a nation we can take to create an environment for communities that by nature don’t breed equal ability individuals, that don’t have aspects of communism or socialism. There are ways that this can be addressed while capitalism remains in tact which is why it is of utmost priority for me to NEVER forget where I came from and provide a voice for the less fortunate because life is short and it’s important to me that we optimize the percentage of people that live life at a quality standard.That’s what I fight for. That’s why I’m an entrepreneur. I was blessed and will never stop fighting to be in a position to be able to pay it forward.

      2. David Roman

        Hey LE– for some reason my response comment no longer shows. Is there something about Disqus i’m unaware of? When you click on my avatar– the comment is listed there, but not here. Is AVC censored at?! I’m confused. The comment wasn’t hostile at all, nor will any comment I ever make here be hostile. Just trying to figure out what happened.

        1. LE

          Hmm. I’m seeing your comment you are talking about the one which started out “Maybe I am naive”.I thought it was a good comment actually when I scanned it. I was going to reply to it when I had a chance.Try accessing from another browser and/or clear out the browser cache and see if it still doesn’t appear.Admin’s are cc’d below:@shanacarpWilliam Mougayar

          1. David Roman

            Yea, I use Chrome and I just loaded up Safari and it did appear there– I guess a cached page is loading which is causing the confusion here on Chrome.

        2. ShanaC

          it might get caught in spam If you think it is, just shoot an email to me shana dot carp at gmail 🙂

  41. David Repas

    If anything has failed, it’s us. You can blame our freely elected representatives all you want, but at the end of the day – we elected them. For the most part, they are doing nothing more than what they believe will keep them in power. Maybe a representative democracy like ours just isn’t capable of dealing with the problems that we are facing. I sure hope that’s not the case, but unfortunately, I’m not encouraged.

  42. Perry Obsternoffan

    Yeah those stinking tea party guys, how dare they demand a balanced budget, they are the real problem!If they would just play ball and tax the heck out of everyone while simultaneously raising spending x10 then Hallelujah we would all be saved.I mean actually shrinking government, balancing the budget, and reigning in the Fed to reasonable levels is absolutely nuts.The answer to the deficit spending of the Bush years is obviously to triple down, remove as much money from the private sector as possible via a slew of taxes and regulations, double or triple the deficit spending rate, print more money, borrow more money, and of course grow government even more, that’s the sane thing to do …The hypocritical part of this is that Fred would never invest in a company that was run as poorly as Obama is running this country yet he and other “social” democrats continues to support him because it’s the socially hip thing to do.History is not going to be kind to us. They will look back and wonder how anyone could be stupid enough to elect a clown like Obama after he had proven himself to be a complete buffoon and a totally incompetent leader.Well at least your kids or their kids will get free condoms in the soup lines.

  43. Eric Falcao

    It’s just all so depressing. Americans are getting to the point of learned helplessness when it comes to our leadership.

  44. Rocky Agrawal

    I still want Mike Bloomberg as our benevolent dictator.

  45. Peter Mullen

    Your post started out appropriately but ended with a wimper. To blame the Tea Party, who were voted in by angry constituents who continue who have continued to lose their voice in Washington to corrupt, out of touch career politicians is just furthering the status quo. Washington does not have a revenue problem. Washington does not need any more of our tax dollars in the form of a tax increase. It has a spending problem. The death by a thousand cuts is the average American who continues to fall behind while politicians and other big monied interests (corporations, unions, trial lawyers, etc) continue to siphon more taxes, fees, price increases from all of us. This is nothing short of an egregious travesty. It’s really time to bring out the pitchforks and send Washington a real message. The Tea Party has more in common with the Occupy movement than any other political group in Washington. Check into the truth Fred, you might be pleasantly surprised.

  46. LukeG

    I haven’t quite figured out the right metaphor yet. Clippers in the age of steamships?I used to be political; partisan even. Today I’m apathetic.Not apathetic about the sometimes-massive challenges we face or the importance of the republic, but almost entirely uninterested in our government’s approach or ability to solve them.I trust my friends to make things better, to make it all work. By “friends” I mean – and include most of the people here – our multi-generational tribe of builders, makers, designers and fixers.Just one example: do you trust our gridlocked federal government to get a handle on our quagmire of a healthcare system, or do you trust passionate company-builders who recognize that they can save millions of lives and tens of billions of dollars by attacking bloated cost centers?Who’s going to be faster? Who’s going to be better? [We know that these fixes will begin worse but improve faster]How can we empathize with or respect our broken congress? Our politicians, so very unfortunately, seem paid to talk, argue, and posture. Our livelihoods as makers, on the other hand, are (and should be) dependent almost solely on our ability to produce change, to make things people want and make them better.We see broken products, we fix them. We see broken markets, we shrink them. We’re going to keep doing what we do, and things will get better.The importance of the massive federal budget and the self-importance of our politicians – the black-hole gravities of these systems – are vestigial features of a government born and bred in the age of powdered wigs & wagons, railroads & slavery, telegraphs & then fax machines, not to mention opaque markets and offline networks and billions of people on an open web.We need the republic, but we also need to remind those in office that they are servants.I do not trust the suits to fix things for us, and definitely not as fast as we need them. I trust us; I trust our friends. The only worry is whether or not we can keep the patient alive while we rebuild her from within.[And, for the record, I do not see a privatized feature. Companies do not survive as such; communities can.]

  47. MrBrandon

    The problems run deep and they outdate Obama’s presidency. In my opinion the biggest part of the problem is a general public not holding a misbehaving federal government accountable for fiscal and civil abuses. Our politicians look at people like 200 pound fish that will bite unbaited hooks on 10 pound lines because they’ve acted that way.With few exceptions,  Fox News, CNN and MSNBC are 90% alike, they tell the story you want to hear not as it is. To me Republican and Democrat have become alternate uniforms for the same team. They put one on when they decide who they want to suck money from, who they want to sell favors to and how they want to lie to you,  then retire from politics and work as a government liaison in the private sector. Positive change can be voted  in but it needs to happen at the local level and the federal level.  I feel that people need to walk away from what we are told is the norm and vote for the outcome they want instead of voting for something because of what it isn’t.Easier said than done thanks to the societal damage caused by a two party system one-upping each other, dividing and conquering with dog and pony shows election after election. PS – They had no problem coming together to push through FISA, NDAA or increasing their pay.  They have no problem being bi-partisan as long at is involves keeping them on the top.

    1. MrBrandon

      OK I apologize for getting worked up and ranting. Ha! What I had really wanted to say was the problem is cleary a budgeting and spending problem brought on by poor leadership.What can I say…I took up the pen and it ran away on me!

  48. Guest

    One of Gary Johnson’s campaign platforms was to submit a balanced Federal budget to Congress in the year 2013. He said that in order to do so, there must be 43% less spending. That means 43% less spent on wars, drone strikes, drug enforcement, government employee salaries/benefits, etc.1. Eliminate the Dept. of Education. They don’t help at all (They’ll give 10 cents if the state does something that costs 15 cents to implement). I would say turn it over to the states, but that’s not far enough. Turn it over to local (county, city, school district).2. Turn over most social services (Medicare, Social Security) to the states. Block grants.3. Abolish the IRS. enact the Fair Tax, or national consumption tax. Each state can add its own taxes in addition to that in order to cover its own costs. One the main arguments is that some want to raise taxes on rich, but cut them for the middle class. Don’t do that on a federal level.4. No more wars or foreign aid. Pull out all troops overseas. I don’t care: “but it shows weakness”, “We’re not finished yet”, “there’s tyranny there, let’s give them democracy”. We do not have the money to be nation building or being the world police, nor does the constitution say it is our job to do so. The greatest threat to our national security is not terrorism or drug trade; it’s our own financial situation.

  49. peterarmstrong

    This is why Canada works. We get a dictatorship every 3-5 years with majority governments, and a neutered, do-nothing government sometimes with minority governments. When the dictatorship model goes slightly bad we get the neutered government as a reaction, and when it goes really bad we get the alternative dictatorship.In all cases, it is far superior to the alternative playing out right now for you guys…

    1. William Mougayar

      Lol, but you should say “benevolent dictatorship”. Either way, they get things done without harm to the country. Harper certainly has been using his powers.

  50. Duncan Logan

    My real fear for America is that the system for correcting a failing Government is now rigged to prevent it from working. Even if change gets into power the system prevents them from executing change.

  51. Phil Anderson

    The main problem is that politicians will never cut programs unless they absolutely have to (State governments don’t have the luxury of printing unlimited money so they’ve been forced to do this). Our federal government is in a unique place, where we can pretty much do whatever we want consequence free (the Euro threat seems largely gone). All the fiscal cliff and debt ceiling drama is caused by congress, they are like the writers of Lost, trying to keep the drama as long as possible.Fred, you are right on all of your points, but I don’t believe the Bohner/Obama deal would have brought annual deficits to 500bil. Our current annual deficit is $5 trillion. When they do these “Saves X over 10 years”, it’s mostly magic wand waving about the saved money from interest payments, so I believe the 4.5 trillion of 10 years really only saved something like 800 bil a year in the actual budget, which is still something significant, but just shows how far we are from a truly balanced budget.

  52. I'm right, you're wrong

    So you do realize that we had a balanced budget for over 100 years with zero income taxes? All of the country’s expenses were paid by import/export tariffs on goods. Why can’t we go back to those days when we operated as a true Republic. Oh, mob rule democracy. “When the people find that they can vote themselves money, that will herald the end of the republic.” Benjamin Franklin.

  53. Paul Meloan

    Sorry, Fred. Two Churchill quotes to remember here: democracy is the worst form of government there is, except for all of the others; and the Americans will always do the right thing, after they have tried everything else.

    1. fredwilson

      i love both of them and use them often. well played.

  54. Marcel

    I love the term “Benevolent Dictatorships”. You guys in the U.S. need a little of that.

    1. fredwilson

      i agree

  55. mikenolan99

    Raising prices always sucks… “We the people” had a fire sale 12 years and never went back to retail pricing, and went on a spending spree to boot.

  56. Otto

    “Death by a Thousand Cuts” reminds me of the joy of watching FC Barcelona. There is nothing joyous about the “fiscal cliff”. Then again, it is demoralizing to watch Barca if you’re a supporter of the other team. I suppose Congress and their wonkish fans take perverse pleasure in passing the buck around 1000 times, but for the majority of people it’s demoralizing to watch. So the title of this post has relevance even to the politically apathetic sports fan like myself. Well said Fred.

  57. << Work at home, $45/h, link

    The world will change for the better when people decide they are sick and tired of being sick and tired of the way the world is, and decide to change themselves.



  59. Alex Murphy

    I don’t know if the Cannons has any cliffs per se, but cliff jumping is one of the best things to do …… so long as the cliff is about 4 to 6 feet. I like that up to maybe 15 feet like you get at Snowbird. This year, we are going to Jackson hold and Corbits … 20 to 30ft + … no way! The lesson learned here is that one person’s cliff is different than another’s. This fiscal cliff was more of a curb than a cliff. I too was hoping for the simultaneous tax raise and spending cut. That would have been a better outcome for the country.Right now though, we need multi year certainty. MYC will creates confidence in business and B2B spending. B2B spending will bring the unemployment rate down and increase middle class wealth. This drives the economy. To get this, we have to get out of this finger pointing everybody loses brinkmanship I doubt it will happen, but my fingers are crossed!

  60. John Revay

    Oh No – it is 10:30 PM US Eastern time and still no post for Jan 2, 2013I hope one of Fred’s resolutions was not to write less.

    1. fredwilson

      i am just all messed up on sleep

  61. Phanio

    My concern is who got what – who got all the back deals to get everyone to agree with this bad plan? Both side were self-dealing for their own interest and that is what upsets me the most. They could have worked out a deal months ago – but what held everything up is what each player was trying to get personally – not for their states or regions but for themselves. But, with $4 trillion being spent by our government each year – I guess everyone wants their piece of it and that kind of money will not only blind you but corrupt you totally. However, it is kind of smart to go where the money is and the government has all the money (money that is not theirs and they don’t really have to earn it – must be nice). I personally agree with the Tea Party. We don’t need more taxes – just less spending – it is time that people looked out for themselves and took personal responsibility and quit sticking their hands outs. You keep taxing the rich (which trickles down to everyone else – the end user) soon you will not have any rich to tax – then what do you do?

  62. Jason Hamm

    I am glad to hear someone talk about the deficiencies of both parties. Criticism of all in DC is deserved. If we could get some integrity in our capital, this could be a problem quickly fixed.

  63. Jonathan Peterson

    Grover Norquist’s no tax pledge has been signed by all but 16 of the 234 House Republicans and 6 of the 45 Senate Republicans. Sadly, what you call the “tea party wing” IS the Republican party.

    1. fredwilson

      They should change their name then

  64. Gene C.

    The actions of the Fed imply that current monetary policy is elastic: the %-change in GDP/%-change in cost of GDP, returns a value > 1 (after factoring in the phantom deficit owed to the Fed itself). The failure to see the bigger economic picture might explain why right-brained politicians focus on self-serving, cut vs spend rationalizations in the same way they failed to grasp how credit default swaps contributed to the banking crisis: exploit the public’s common, right-brain understanding of economics to promote their political agenda.

  65. Substrate Undertow

    And the Banks own Wall Street !

  66. JLM

    .Whoa, Sage, I do NOT belong to any party. They won’t have me and I don’t want to join.”JLM, party of one? Your table is ready!”As to the budget, there is plenty of blame to go around. You are however overlooking that all spending originates in the House and must be ratified by the Senate. The House has sent tens of spending bills to the Senate — no action..

  67. Aaron Klein


  68. Aaron Klein

    In my state, the combined rate for top earners is closing in on 60%, and we’re now doing retroactive taxation. Yes, that’s a huge disincentive.

  69. Aaron Klein

    Productive wealth-creating labor.

  70. Aaron Klein

    I’d vigorously oppose a few things on this list, but there are a lot of things we can agree on.

  71. JLM

    .The Eisenhower marginal tax rate — an inheritance from Truman — was on then current incomes over $400,000 only.What would the buying power of $400,000 from 1952 be today — about $4,500,000..

  72. JLM

    .A lot of good things on your list. Bravo.It is important to distinguish legitimate “deductions” v “loopholes”.As an example, depreciation and depletion allowances are legitimate accounting costs which are a fair measure of the capital consumed in operating a business or exploring for oil.These are not “loopholes”. They are legitimate costs of running certain businesses and are in complete conformance with GAAP.On the other hand, the Fiscal Cliff Bill passed yesterday includes $1.5B for Goldman to build a new building in lower Manhattan. This is the work of Bloomberg, Cuomo and Schumer.That is DISGUSTING, OBSCENE and PIGGISH. It is the Obama administration buying the votes for the passage of the Fiscal Cliff Bill. It makes me want to puke.Move along, little people, you are NOT the exalted Goldman Sachs and you never will be.Now pay your taxes and STFU so we can give $1.5B to our buddies over at Goldman who by the way during elections we call our “donors”..

  73. Charlie Crystle

    good point

  74. Will Luttrell

    He is likely simply reacting to the fact that your original post seems to lay 100% of this mess on Obama’s doorstep.

  75. JLM

    .Fair play.The President is sitting at the head of the table and, yes, the lion’s share of the blame is on his plate.The Executive Branch leads the country and he is the Chief Executive.He has led — arguably perhaps ineffectively — on matters such as the Stimulus and the GM bankruptcy. You cannot turn on and off your leadership duties.A Chief Executive is responsible for everything that happens or fails to happen..