Pessimistic reasoning undermined by epistemic uncertainty.
Wednesday, November 21, 2012
The Fish Call Cliff
Rule of thumb: anyone trying to simultaneously make you scared of both
1. the fiscal cliff and 2. not getting the deficit fixed in the next few years
has a bad underlying model of how the economy works. The "fiscal cliff" is a bunch of tax hikes and spending cuts that get rid of the deficit real fast. Since the "fiscal cliff" is just sharp deficit reduction, if going off the fiscal cliff is a bad idea right now, by definition sharp deficit reduction is a bad idea right now.
You should also be wary of people who oppose stimulus but support the fiscal cliff. If cutting a lot of government spending and raising taxes is a bad idea right now because it will hurt the economy, maybe lowing taxes and raising spending is a good idea because it will stimulate the economy? As near as I can tell, if the fiscal cliff is a bad idea it's a bad idea for pretty Keynesian reasons.
That said, it is possible to be worried about both the deficit and the fiscal cliff, but you should expect those people to talk about the deficit as a long term problem we have some time to fix. If we have to fix it now now now, then the fiscal cliff does that. If we have some time and if we want to keep spending up and taxes low now to stimulate the economy, then the fiscal cliff is too abrupt and should be avoided.
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If the only two tools the government had at its disposal were taxation and spending, I'd agree with your fiscal cliff post. I don't think it's either-or, though.
ReplyDeleteI agree that monetary policy is really important, but to me if you are obsessed with the fiscal cliff and the deficit you are, sort of by definition, obsessed with fiscal policy, IE with taxing and spending. It matters, of course, what we are taxing and how we are spending, but it seems to matter a lot more to a lot of commentators these days that we close the deficit. You can't say, "the deficit is the biggest problem facing America right now" and then say, "No, I don't like that easily implemented plan that fixes the deficit because I disagree with its spending and taxing priorities. Better to pursue my personal spending/taxing preferences and risk scuttling the entire process."
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