I’m sure most people have heard something about the next big crisis in politics, the fiscal cliff. I’m not going to go into a great deal of detail, because I don’t think it’s necessary right now. At this point, I think there are two things that the general public should know about the fiscal cliff.
The first, and most important, thing that you should know about the fiscal cliff is that the danger it poses is too much deficit reduction. Many people, like Alan Greenspan, are intentionally distorting the issue, acting like cutting the deficit is a solution to this problem. The problem is that we’re cutting the deficit. The economy is still very weak, and drastic measures to cut the deficit will likely push us back into recession. That’s why Ezra Klein of Wonkblog has been calling it the Austerity Crisis.
Going over the fiscal cliff would massively reduce the deficit, but big cuts to the deficit hurt the economy. Many conservative economists and politicians have been arguing against that idea, but this is where we see if they will back up those arguments with action. If they’re right, if cutting the deficit would be good for the economy, they should want us to go over the fiscal cliff. If they’re right, the fiscal cliff is a good thing. The fact that there’s a virtually unanimous agreement that the fiscal cliff is a bad thing puts a lie to a lot of what deficit hawks have been saying for the last few years. It proves that they truly do accept the basic premise of Keynesian economics, that government spending boosts the economy in the short term.
Second, the cliff imagery is very deceiving. No direct or immediate damage will be done to the economy if we go over the cliff. There could be secondary damage to the market or some such, but the damage that the cliff does will be gradual, and could theoretically be fixed after January 1.