Economy tom toles on the fiscal cliff: deficits don't matter

Published on November 26th, 2012 | by Jeremy Bloom

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The latest GOP lie: There IS no fiscal cliff

tom toles on the fiscal cliff: deficits don't matterYou’ve been hearing the drumbeat: We can’t afford clean energy, or high-speed rail, or a green economy, because there just isn’t any money, and unless we cut the deficit RIGHT NOW, the entire world will end and xxxx. We certainly can’t afford to do anything about climate change (you know, that thing that might actually CAUSE the end of the world as we know it) because we just don’t have any money.

There’s just one problem: It’s complete and utter hogwash.

When the GOP is in office, they spend like drunken sailors on whatever they feel like: Unfunded wars, unfunded Medicare part D, unfunded supplements to big oil, big coal, big ag… and of course, tax cuts. And when asked, they say, “Reagan taught us that deficits don’t matter.” When Bush took office there was both a surplus and a budget plan to keep us in surplus… and the GOP set it on fire and tossed it out the window.

When the Democrats are in office, suddenly the GOP gets religion – the old time religion, the kind that says borrowing is immoral and we must cut cut cut (except for defense and oil subsidies and the other stuff that the GOP loves – we can only afford to cut DEMOCRAT stuff).

So now we are approaching the so-called fiscal cliff? Here are a few key things you need to know:

  • Just as with the debt ceiling limit, the fiscal cliff is an entirely artificial deadline. It is entirely meaningless. It was passed by Congress, and it can be revoked by Congress just as easily (just as they changed the law and got rid of the budget surplus after Bush was elected).
  • If Congress votes to change the law, on January 1st precisely nothing will happen.
  • If Congress fails to change the law, on January 1st almost nothing will happen. Why? Because even the draconian across-the-board cuts called for in the sequester need to be implemented. Some defense contractors are talking about sending people home and shutting down projects… but that’s in anticipation of cuts that may or may not ever happen.
  • Most importantly, if we fail to act on the deficit over the next month, the US financial system will not melt down, world borrowers will not abandon us to the wolves, and we will not all be reduced to selling thumb-drives on the corner (because really, who buys pencils anymore? Nobody…).

Paul Krugman was particularly harsh this morning in his condemnation of the deficit Hawks who are actually deficit weenies:

These are difficult times for the deficit scolds who have dominated policy discussion for almost three years. One could almost feel sorry for them, if it weren’t for their role in diverting attention from the ongoing problem of inadequate recovery, and thereby helping to perpetuate catastrophically high unemployment.

He then lays out the facts (which, as usual, have their well-known liberal bias):

  • Far from fleeing U.S. debt, investors have continued to pile in, driving interest rates to historical lows.
  • The clear and present danger to the American economy isn’t that we’ll fail to reduce the deficit enough; it is, instead, that we’ll reduce the deficit too much.
  • The tax hikes and spending cuts scheduled to kick in at the end of this year are precisely not what we want to see happen in a still-depressed economy.
  • The truth is that at a fundamental level the crisis story they’re trying to sell doesn’t make sense.

We’re not Greece – we’re the largest economy in the word, with the world’s currency of choice. It makes sense to grow ourselves out of the current mess – but that takes stimulus, not austerity. Their prescription for a patient who’s having trouble getting enough oxygen is to strangle him. That’s just stupid.

So let’s step back for a minute, and consider what’s going on here. For years, deficit scolds have held Washington in thrall with warnings of an imminent debt crisis, even though investors, who continue to buy U.S. bonds, clearly believe that such a crisis won’t happen; economic analysis says that such a crisis can’t happen; and the historical record shows no examples bearing any resemblance to our current situation in which such a crisis actually did happen.

If you ask me, it’s time for Washington to stop worrying about this phantom menace — and to stop listening to the people who have been peddling this scare story in an attempt to get their way.

And the really stupid part… aside from the sequester (which nobody actually wants to happen), most of the deficit reduction that’s being talked about is waaaaaay down the road. Years down the road. When you hear them talking about $4 trillion in deficit reduction, it’s a few billion this year, and hundreds of billions in ten years.

But as Congress has shown again and again, you can’t bind next decade’s Congress by passing a law today. So really, what are we accomplishing? Nothing.

So can we please get back to dealing with our actual problems? Such as climate change, the clean energy revolution, our falling-apart infrastructure, and the fact that we’re falling further and further behind the Chinese and the Europeans in the 21st century economy? Solving our budget “problem” isn’t going to make any of that better… it’s going to make it all much worse.




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About the Author

Jeremy Bloom is the Editor of RedGreenAndBlue.



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