The fiscal cliff is awful.
1. It’s awful that there’s any possibility of imminent austerity.
The US recovery has far exceeded the recovery around the entire world because the US has been able to resist the siren song of spending cuts and tax increases. The recovery has been good by historical standards, the economy is still weak, with unemployment still way too high.
History is pretty clear that premature austerity not only kills recoveries, but also worsens the deficit situation, as this chart from Richard Koo (which is in reference to Japan’s Balance Sheet Recovery) shows.
Click to enlarge
Photo: Richard Koo
2. It’s awful that the sequester — the spending cuts part of the cliff — was only brought about because one party insisted on hardcore austerity during the debt ceiling negotiations.
Everyone agrees that the spending cuts domestically and to defence are a bad thing that should be avoided, or phased in slowly. But they only exist because the Republicans tried to make hardcore austerity part of the Debt Ceiling negotiations in 2011. Now they insist on undoing them.
3. It’s awful that the media coverage of the Fiscal Cliff is so bad.
Countdown clocks. Graphics of cars flying off cliffs to fiery death is no deal is made by January 1? Come on. Although it would be bad to let the spending cuts and tax hikes fully go into effect, if this thing is addressed in early January, things will be OK (unlike the Debt Ceiling, which really was a big deal).
4. It’s awful that nobody is talking about extending the Payroll Tax Cut Holiday.
The reduction of payroll taxes is one of the biggest things that’s expiring on January 1, and it’s one area that flows through directly to all workers. It appears to not be on the table at all.
5. It’s awful that nobody is talking about extending emergency unemployment benefits.
Unemployment has come down, but it’s still too high. Nobody is even arguing that they should be extended.
6. It’s awful that people think that the Fiscal Cliff has something to do with our gigantic national debt.
There are so many reports about how the Fiscal Cliff crisis is about “solving” our national debt problem, when in reality it’s exactly the opposite. It’s about preventing imminent austerity (via tax hikes and spending cuts), and preserving our loose fiscal policy.
7. It’s awful that because of this conclusion, there’s so much demand to talk to Alan Simpson and Erskine Bowles, who chaired a deficit commission, and who have a big campaign to reduce the debt.
Simpson and Bowles are on TV everywhere, all the time, because they’re regarded as a-partisan, “serious” experts on fiscal matters. They shouldn’t be. Their whole thing is about reducing spending. This crisis is about a way of avoiding reducing spending. They have no credibility on this issue.
8. It’s awful that Simpson and Bowles have been able to parlay this fame into $40,000 speaking fees.
Actually, hats off to ’em! This is America (but we have serious questions about anyone who would spending $40,000 to listen to them).
So all around: Awful situation, awful coverage, and awful political hypocrisy.
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