Worrying about the fiscal cliff just leads to victory dances from Keynesians…
Suzy Khimm wrote an excellent post (during a hurricane, no less) earlier this week on the incoherence of those screaming about the alleged dangers of mounting public debt while also fretting about the “fiscal cliff.” To reiterate her point and be very clear (again) on this: The danger of going over the “fiscal cliff” (bad metaphor, by the way) is that budget deficits will fall, not rise, too quickly. This is very confusing to far too many economic commentators and policymakers because they have been trained to a near-Pavlovian degree to think the federal budget deficit is always too high and rising too quickly.
FULL ANALYSIS FROM EPI: Budget battles in the lame duck and beyond
This failure to realize that there should be much more to consider when making fiscal policy than “deficit BAD” has been a big problem in dealing with the Great Recession and its aftermath (see this blog post for an extended take on this).
So, I applaud Khimm’s campaign to spread the word that if you’re worrying about the “fiscal cliff,” then you’re a Keynesian, period.
I’ll also note that my colleagues and I have been trying to undertake just such an educational campaign on this issue for most of the last three years, and pretty much constantly ever since the phrase “fiscal cliff” entered the public sphere.
Like in May, when I had the following exchange on the PBS NewsHour:
Judy Woodruff: But just to back up for a minute, how do you see the depth of the debt crisis or debt problem facing the United States?
Me: Well, I think we should be clear. When people talk about the fiscal cliff coming in 2013, it’s not a crisis of too much debt. … [It’s] a crisis of ramping down debt too quickly … the right thing to do here and now is to spend more money, financed by debt, in order to bring the unemployment rate down quickly. And I think that’s the real thing we should be focused on.
Or in June, when I wrote the following on CNN.com
Casual observers of budget politics (that is, most voters) may know that the experts in such things are very concerned about rising public debt. They have also probably heard much talk about the “fiscal cliff” the nation is headed for in 2013
What they might not know is the real danger is that public debt will stop rising quickly. That cutting spending and raising taxes to slow the growth of debt will cause spending to fall across the economy and bring about a new recession.
Or in blog posts in June, July and August … or the report I co-authored (with Andrew Fieldhouse, who has been, along with other EPI colleagues, running their own parallel campaigns to spread good sense on fiscal policy; I’m just linking to stuff I remember writing myself) in September.
It really would have been nice to have been joined in this informational campaign by more fellow economists and policy wonks. This recent pivot to worrying about spending cuts and how they’ll drag on economic recovery in the coming year if they materialize, however, is a useful reorientation of the debate.