How the Fiscal Cliff Has Helped Clear the Air
Now that elections season is over, Washington has returned to obsessing over the “fiscal cliff,” a collection of tax increases and spending cuts that—if triggered—would gradually remove hundreds of billions of dollars from the economy and put the United States on the path to another recession.
What’s interesting about the fiscal-cliff conversation is that this straightforwardly Keynesian argument—we shouldn’t reduce deficits during an economic recovery—is coming from people whose claim to fame is deficit reduction regardless of the circumstances. Erksine Bowles, for example, is a notorious deficit scold whose namesake—along with former Republican lawmaker Alan Simpson—is the Bowles-Simpson deficit-reduction proposal, which would reduce the debt by $4 trillion over the next decade through a combination of tax increases and cuts to entitlement spending. Bowles thinks it’s imperative that we avoid the fiscal cliff:
“People are never going to understand how critical this particular time in history is,” said Erskine Bowles, the North Carolina businessman and co-chairman of President Barack Obama’s National Commission on Fiscal Responsibility and Reform. “We have $7.7 trillion worth of economic events that are going to hit America in the gut in December, and in Washington they’re doing nothing about it.”
But, of course, the fiscal cliff provides the kind of deficit reduction Bowles prefers! Going “over” the fiscal cliff would sharply reduce our deficit and debt, and force all constituencies to “sacrifice” something of value. Middle and upper-income taxes would return to Clinton-era rates, spending on the military would drop by $1.2 trillion over the next decade, and non-defense discretionary spending would freeze.
Bowles isn’t the only avowed opponent of the deficit who wants to avoid the largest deficit-reduction package in recent memory; writing for The Washington Post, Lori Montogomery describes policymakers who correctly see the fiscal cliff as a threat to our slow-going recovery, but who also feel the need to make “hard decisions”:
In the past, policymakers have handled such moments by delaying the pain and giving themselves new deadlines for getting the budget under control. Now, however, the national debt is larger, as a percentage of the economy, than at any time in U.S. history except for the period after World War II — and it’s rising rapidly. Avoiding hard decisions could have grave consequences, analysts say, potentially undermining the U.S. economic recovery and the world’s confidence in American leadership.
This is incredibly muddled. Is it the national debt that stands as a threat to our economy? Or is it the austerity measures that we’re trying to avoid? If it’s the latter, then what problem is there in kicking the can down the road and allowing the economy to recover more before dealing with long-term debt reduction?
If I had to guess, I’d say that the current incoherence of deficit hawks has everything to do with the fact that it’s not actually the deficit that they care about. Figures like Erksine Bowles, Alan Simpson, and others are most concerned with cutting entitlement spending and keeping taxes low. They want to avoid the fiscal cliff because they see that as antithetical to their goals, and they’re right: An austerity-sparked recession would make it more difficult to implement the policy measures they want.
Given the near-unanimous desire to avoid a second recession, lawmakers are likely to find some way to avoid the fiscal cliff. In the meantime, it has served a useful purpose for those of us who want to move the deficit away from the forefront of policymaking: It’s revealed the extent to which “deficit reduction” is little more than a vehicle for advancing narrow ideological preferences.
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