The Fine Print By: Gabriel PotterMBA, AIFA® 2012.11.14

The election is over.  The next challenge is the Fiscal Cliff.

I’ve been considering the election from an economic perspective.  Let me explain:  Economics models optimum behavior given the costs, benefits and trade-offs of any choice.   Economics is the study of diminishing marginal returns.  Economics prioritizes infinite wants given limited resources.  Economics is the study of scarcity. 

Both candidates knew that the US has been living beyond its means.  Both candidates knew we have been borrowing too much and paying for more than we can afford.  Both candidates knew something has to change and sacrifices have to be made.

Given this universally conceded context, I would have loved to hear a more discussion of the trade-offs.  I must be one of the few policy minded wonks who ascribe greater credibility to candidates who are forthright about the costs of a proposal.  When a candidate simply reviews the positive elements of their plan, I become immediately suspicious and start looking for the fine print.  Our current presidential candidates were equally unwilling to embrace the costs of their policies. 

Note that I am not rebuking the televised presidential debates.  The debates were popular television, but they are short affairs, kept to two minute speaking intervals.  There simply is no room for detail in a debate.  On the other hand, each candidate had a webpage and plenty of opportunity to fully communicate their vision.  Still, we lacked specifics from both candidates on key issues and only now, after the end of the election, are we seeing information come out.

During the campaign, the President clearly fought for a second term, but did not put out a lot of proposals on the table for consideration.  For example, the President released an 11 page pamphlet - the “Plan for Jobs and Middle Class Security” - on October 24th, two days after the final presidential debate.  As we know, at least one inevitable change is rapidly approaching.  The expiration of the Bush-era tax cuts and imposed sequestration (i.e. the Fiscal Cliff) hits in January 2013, but the President waited until after the election to highlight his negotiation limits.  I also haven’t heard follow ups to his recent position shifts.  For example, in the 3rd presidential debate on foreign policy, the President declared that he would no longer threaten complete sequestration of the defense budget.  That is a reversal from previous veto threats on budget negotiations, but this policy shift has been essentially ignored. 

Alternatively, the challenger had a different economic vision for the country.  No matter where your political preference, Governor Romney should earn credit for bringing on Paul Ryan, who at least opened a necessary conversation on our national debt, even if you didn’t favor his solutions to the problem.  However, independent observers agreed that Romney’s economic plan lacked clarity.  For example, in October and during the Presidential debates, Romney suggested a hypothetical limits on tax deductions of $17,000, but these numbers shouldn’t have been hypothetical at such a late stage in the campaign.  By the end of the debates, we still didn’t know which tax loopholes would get closed, for whom, and for how much.   

Both candidates purposefully avoided specifics.  I can only assume that the candid approach had been considered by both camps and rejected as a losing strategy, either for the election itself, or by limiting their precious flexibility, their “wiggle-room”, in the negotiations that were sure to follow.

At least the election is over now and we’re finally elbow deep in the details.  Hopefully, we now get to see the fine print.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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