Maybe it’s just me but I seem to see a rising tide of conventional wisdom suggesting that going over the “fiscal cliff” wouldn’t be so bad after all. Here’s its incarnation from the Wall Street Journal:
We should add that the one part of the cliff not to worry about are the automatic spending cuts (the “sequester”) that will start to hit on January 1. The Keynesians who believe that government spending is the main source of growth are portraying this as a calamity. But when has Washington ever seriously cut spending other than after a war?
The sequester would cut a mere $109.4 billion in 2013, with half from defense and half from domestic (mostly non-entitlement) accounts. It would be smarter to decide which programs to eliminate, rather than cut across-the-board. But the size of these cuts are small in a nearly $4 trillion budget. And to the extent that they signal at least some spending restraint, they would help the economy by reducing the need for future tax increases.
and here’s the version from Politico:
Washington’s Democratic and Republican power brokers have sent the message to the nation that going over the fiscal cliff is a worst-case scenario. But they’re not acting that way, not at all.
Instead, many of them have calculated that it’s better to go over the cliff — at least temporarily — than swallow a raw deal.
As I have said any number of times before, I opposed the “Bush tax cuts” in 2001, I opposed them in 2003, and I opposed them when the Democratic Congress voted to extend them in 2010. I have no particular attachment to them now. I do, however, have some questions that I wish someone would answer:
- Why is President Obama so committed to a tax increase on the top 1% of income earners that will do next to nothing to solve the country’s fiscal problems? Is it purely symbolic?
- If you’re going to increase taxes which, presumably, is anti-stimulus and increase spending which, presumably, is stimulus, why not just leave things as they are? Because you’re a better judge of how to spend the money?
- The economy has been in recovery for two and half years. If you believe in short term counter-cyclical stimulus in opposition to a shortfall in aggregate demand, when does the short term end? Aren’t our problems structural now? Where are the solutions for structural problems rather than a shortfall in aggregate demand?
Here’s another version of the same thing from Jonathan Kohn at The New Republic:
Let’s review what happens on January 1, at least officially, if Congress and President Obama don’t act:
Tax rates on all incomes would return to what they were during the Clinton era, before the Bush tax cuts reduced rates. Automatic spending cuts to a wide variety of agencies, including the Pentagon, would take effect—a punishment Congress imposed upon itself, by failing to find alternative spending cuts that it had vowed, in 2011, to find. Extensions of refundable tax credits for the working poor, families with children, and people paying college tuition would expire, as would an emergency federal program that provides extra unemployment benefits and a temporary reduction in payroll taxes. Medicare would reduce what it pays doctors and income tax filers would have to consider whether they fall into the “alternative minimum tax,” resulting in substantially higher liabilities.
Lots of people would feel the impact personally—their paychecks would shrink, government services would become less available, and so on. In addition, the policies as a whole would reduce the money going into the economy, causing it to slow down and quite possibly fall back into recession. That’s obviously not an outcome anybody wants.
But would all of these things happen right away? Is January 1 truly the make-or-break date that so many politicians and pundits seem to think? That’s a lot less clear.
That’s an interesting view of events. As I read him companies and individuals never make plans based on expectations of what will happen but only act in response to things that have already happened.