2012, Economics, Politics

The Fiscal Cliff: Another triumph of rhetoric over policy

I am not economist and perhaps that’s why I have trouble understanding the panic and the political stubbornness around the non-crisis of the so-called “fiscal cliff. (On the other hand, it is perhaps because of the fact that I am a not an economist that I have perspective, something that seems to be sadly lacking in most “mainstream” American economics.)

The Republicans, were they the fiscal conservatives so many of them claim to be, should welcome the fiscal cliff. Fiscal conservatives should be happy that, without acting in the present moment, the debt will be reduced automatically. This is normally the goal of fiscal conservatism.

However, the Republicans are not actually the party of fiscal conservatism, as many claim. As two of their last three presidents attest, they are really the party of “less taxes and more military spending.” So perhaps that is why they are against the fiscal cliff; because of the spending cuts. I think the real reason they are opposed is they are like all politicians: they fear for their jobs and have no long term plans whatsoever. The long term benefits of “going over the fiscal cliff” are lost on them and instead all they see is the potential recession. The fact that a recession might likely result from any major debt reduction appears lost on these people.

The Democrats should also welcome at least half of the “fiscal cliff”: the end of the Bush tax cuts. If they are truly serious about making the tax system fairer for the average person – and it is a matter of fairness folks, progressive taxation isn’t socialism, it is fairness, and it is as old as taxes themselves; it’s so old it could be called conservative – then they should welcome that side of the fiscal cliff. They may not like the small program cuts, but they should realize that, when fighting with the Republicans, any tax increases will need to be accompanied by some kind of compromise in spending (on things other than security).

So really, instead of fear-mongering about this possible recession – sure a recession is probable, but it is not guaranteed by any means – both parties should cut the rhetoric and merely proceed as if nothing were happening. The Republicans could trumpet how they cut down the debt and the Democrats could trumpet how they repealed the Bush tax cuts. They would both be lying to an extent, but that’s no different from normal.

Instead, they are fighting about something that, in the long-term, will likely be good for the country. Now, while I am no fiscal conservative any more – I actually believe that the surpluses carried by many liberal democracies in the 20th century were flukes and that it is normal for governments to run deficits – I believe that the US debt is something that is out of hand and needs to be at least somewhat reigned in. This is an opportunity to do that.

A recession might indeed result – it would likely result any time such an effort to reduce the debt is undertaken, deliberately or otherwise – but if the richest of the rich – those experiencing the higher taxes – do not change their spending habits then the recession will likely be less deep. It’s those whose spending power might be lessened by the program cuts who might not be able to prevent a recession because they cannot spend as much. But the way economies work is that if everyone acts as if there is no recession then there isn’t one. So certainly if those experiencing the tax hikes – who can absolutely afford to continue their spending habits despite those tax hikes – do not change their spending habits, then the recession won’t be so bad, and the debt will go down. A win-win.

Instead, we may get some political action which, in this case, does not appear to be at all necessary. It will be in the name of preventing a recession and it will involve a continuation of the tax cuts, a lack of cuts to the programs under threat, or a combination thereof. The debt won’t go down. And the problem will be put off for other people to deal with later, which is what politicians always seem to do. Oh well.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.