Dean Barber

Remembering Buzz Gunderson

In Uncategorized on July 31, 2011 at 9:04 am

I’ve been thinking a lot about Buzz Gunderson lately.

To refresh your memory, Buzz Gunderson was the local bully in the 1955 classic movie “Rebel Without a Cause.”

Buzz challenged fellow teenager Jim Stark (James Dean) to a “chickie run,” in which they would race two stolen cars towards a cliff, with the winner being the last one to jump out. The game ends in tragedy for Buzz when a strap on the sleeve of his leather jacket becomes looped over a handle on the car door, preventing him from jumping out before the car goes over the cliff.

Fast forward to today. There has been a whole lot of brinkmanship taking place in our nation’s capital, with a minority group in the House of Representatives – I’ll call them the redhots – making all kinds of noises that they are willing to drive the economy off a cliff if they don’t get their way. They are playing their own version of a “chickie run” by vowing to vote against raising the debt ceiling and thereby threaten the nation with default.

President Obama announced Sunday night that Republican and Democrat leaders in the U.S. House and Senate reached an agreement to increase the nation’s debt ceiling by $2.1 trillion and cut government spending by $2.4 trillion or more. The House passed the measure 269 to 161 early Monday evening. The Senate votes Tuesday and is expected to affirm the agreement.

Now I have avoided delving into the political realm, concentrating on matters of business and the economy, hence the name of my blog. And I would hope that my readers have not a clue as to my political leanings. And I say leanings because I am not a devotee to any political party.

And while I have no desire to alienate those few loyal readers that I have, this issue is just too big for me to remain quiet.  If you disagree me, that’s fine. Just don’t kick me to the curb as being the member of some enemy camp, which seems to be the norm today. I’m just a concerned citizen, a business owner, who wants stability and things to improve.

Now back to the kerfuffle in Washington.

Even if this tentative deal is approved, it may be mild relief for an economy at risk. It does not remove the risk of a credit downgrade, which would raise the cost of borrowing across the board. There’s little consensus on what exactly will happen if Standard & Poor’s decides to downgrade the U.S. from AAA, which is the gold standard, to AA. It could be something big that our children and grandchildren will read about.

It is likely that the U.S. government will have to pay more every time it borrows. How much more it’s impossible to know. But with $14 trillion worth of debt, every little more interest hurts.

And if you have a second-rate credit rating, it means in the eyes of the world you’re a second-rate country. It will be an embarrassment, with the U.S. rated lower than Canada, Australia, Germany, France and Britain.

Economists were stunned on Friday with data showing the economy grew just 0.4 percent in the first quarter and only 1.3 percent in the second quarter. Meanwhile, manufacturing growth hit its lowest level in two years, according to figures released Monday by the Institute for Supply Management.

Aside from a terribly weak economy with no job growth, what is also clear is that there is a real gulf between Tea Party activists and establishment Republicans and the business community.

The redhots suspect House Majority Leader John Boehner as being too moderate, too willing to cut a deal with a demonized socialist enemy (the White House), and that Boehner just wasn’t pushing hard enough. To appease them and probably save his job, Boehner added a balance budget amendment provision to his bill, knowing full well it would not fly in the Senate. And naturally it didn’t.

But the not so dirty little secret is that any future deal will be largely on Republican terms, with spending cuts and no tax increases. Still, the redhots have continued to overplay their hand and have pushed the country to the brink.

The late Bill Buckley said that thoughtful conservatives respect and acknowledge reality. This minority element of radical republicans do not control the White House and they do not control the Senate, which is where a workable deal will be reached.

The market has been jittery that no deal has been reached on raising the debt limit, but also the prospect of nation’s credit rating being downgraded. The agreement reached Sunday would raise the debt ceiling in two installments, sufficient to serve the nation’s needs into 2013. The framework would cut $917 billion in spending over a decade, raise the debt limit initially by $900 billion and assign a special congressional committee to find another $1.5 trillion in deficit savings by late November, to be enacted by Christmas.

Nobody knows with certainty what happens if Congress fails to raise the nation’s $14.3 trillion debt limit by Tuesday midnight. Default is a place where we have never been before. The Treasury says that after Tuesday, it cannot borrow any more money, so it will only be able to pay out what it has in cash and what it takes in taxes. And the problem is that in August, the Treasury has commitments to pay $130 billion more in bills than it anticipates receiving in tax receipts.

Democrat House Majority Leader Tip O’Neal accommodated Republican President Ronald Reagan 18 times in raising the debt limit. National crisis was averted because these two men, with substantial philosophical differences on the role of government, knew that governing responsibly meant compromise. At the 11th hour, let us hope that a thoughtful grownups have taken control and brought order to disorder.

It is clear now that we underestimated the Tea Party. The business community, who helped elect these knuckleheads, thought they could control and tame this crowd. The consensus was that these idealists would become practical. But the redhots believe in a different reality.

Now my criticism is not solely leveled at GOP radicals who have been holding the nation hostage. Our faculty-lounge president has not come close to providing the needed leadership to diffuse this crisis. Democrats on the Hill grumble that he has largely been the invisible man. Certainly, he has been outmanuevered. He never really came up or pushed a plan.

And while he holds news conferences to demonstrate that he is a reasonable man and willing to compromise, it appears to me that President Obama had n0 desire to wade into the fight and get dirty. He sought to stay above the fray. But he loses by his very absense. This aloof president will not come out of this unscathed. Certainly, his base is not happy with him.

Again, there is still no guarantee as of yet if the credit rating agencies will give their stamp of approval for this tentative agreement. Those private agencies may still downgrade the ratings of U.S. debt, on the belief that the proposed spending cuts are not enough.

When George W. Bush became president, we had a debt of about $6 trillion. Projections from the Congressional Budget Office were that we were going to run a $6 trillion surplus. In short, the national debt could have been paid off in full.

But it didn’t happened. During the Bush Administration, Congress enacted about $3 trillion of tax cuts. We lost about $3 trillion of revenue because of the slower economy. And then we added about $6 trillion of spending, largely due to two unfunded wars and a Medicare drug benefits program. We ended up with about a $12 trillion debt. Yes, this actually took place under a Republican president and a Republican Congress.

Why the GOP abandoned its tradition of fiscal restraint, I cannot begin to tell you. But it happened. And now we face the consequences, with both parties acknowledging that deep spending cuts must be made. Because when debt is approaching 100 percent of our gross domestic product every year, that is a big problem.

As he was about to embark on his death race with Jim Stark, Buzz Gunderson stood at the edge of the cliff. As Jim questioned why they are going ahead with this, Buzz responded, “You got to do something, don’t you.”

The thing you don’t do is go over the cliff. Default in not an option. So let’s stop the “chickie run” and back away from the abyss.

In hindsight, I think Buzz would agree.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Red Oak, Texas — www.barberadvisors.com You can reach him at dbarber@barberadvisors.com or at 972-890-3733.

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