Photo: Bloomberg TV
Alan Greenspan was on Bloomberg TV this morning, talking about the Fiscal Cliff.If you read his comments, you’ll quickly understand why there’s so much confusion on this topic, and why the media coverage of the Fiscal Cliff has been such a horror show.
Here’s a partial transcript provided to us by Bloomberg TV. (You can find the video here)
Greenspan on the fiscal cliff:
“We have to recognise that this is going to be extraordinarily difficult to solve. All of the simple low hanging fruits have been picked and the presumption that we are going to resolve the big issue on spending by making a few little twitches here and there I think is a little naive. If we get out of this with a moderate recession, I would say that the price is very cheap. The presumption that we will solve this problem without paying I think is grossly inappropriate.”
On Simpson and Bowles saying that the markets could crash if a deal isn’t made:
“I think it is not only Simpson-Bowles. I think the markets are getting very shaky. And they are getting shaky because I think fiscal policy is out of control. And I think the markets will crater if we run into any evidence that we cannot solve this problem. And I think the notion that the issue of the impact on the economy is strictly the spending tax issue, is also the market. I think we underestimate the extent to which the market value of assets has a very important impact on real GDP.”
Look, the Fiscal Cliff is about one thing: Avoiding spending cuts, and avoiding tax hikes on everyone.
The U.S. recovery has been remarkable on a comparative basis precisely for one reason: Because despite all of the rhetoric, the U.S. has completely avoided the austerity madness that’s gripped much of the world.
Ryan Avent has a great chart that’s going viral today showing how well the U.S. has done vs. the rest of the world.
Photo: The Economist
Also by historical standards, the U.S. recovery has outperformed vs. other financial crises.
Photo: Josh Lehner
But the fiscal cliff threatens all of this progress, because it represents a moment where for the first time since the crisis, the U.S. is finally going to take the slow austerity suicide pill.
This is not to say that the U.S. will blow up on January 1, but the longer we go into 2013 with no deal to keep taxes low and restore the spending cuts agreed to in 2011, the more likely it is that we’ll go into recession, and re-begin the deleveraging that’s made this crisis so brutal.
And so here is Greenspan being completely misleading, talking about how the big challenges now are to find places to cut spending, rather than to reverse spending cuts that we’ve agreed to. He’s framing the cliff 100 per cent backwards, and so naturally the public and politicians are going to be totally confused about the issue at hand.
At some point we need to decide if taxes should be higher. And we can talk about whether we want to allocate fewer resources to the aged. But right now there’s one task: Preventing austerity.
And Greenspan, and Simpson, and Bowles aren’t helping.
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