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November 12, 2012

The Grand Confusion: The “Fiscal Cliff” Is an Austerity Program

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Obama wants this deal for his legacy

Paul Krugman explains the problem for all of the deficit scolds trying to use the fiscal it’s-not-a-cliff cliff as a forcing mechanism to cut the social safety net.

The fiscal cliff poses an interesting problem for self-styled deficit hawks. They’ve been going on and on about how the deficit is a terrible thing; now they’re confronted with the possibility of a large reduction in the deficit, and have to find a way to say that this is a bad thing.

Precisely. Cutting the deficit has been discussed in terms of a moral imperative for the past two-plus years. But now we’ve arrived at a situation where the deficit would get cut a significant amount, and budget analysts make the obvious, inconvenient case that this would throw the economy back into recession. All the alternative explanations from the deficit scolds – a lack of confidence, the threat of higher interest rates – have nothing to do with the fiscal slope. It’s just that it would pull back on federal spending and raise taxes to such a degree that the economy would suffer.

I think the way elites plan to handle this is to not handle this, and merely say a bunch of contradictory things all at once, in the hopes nobody but maybe Krugman will notice. And he can be easily ignored, especially if the rest of the media plays along, hyping the “fiscal cliff” as a dread scenario for which a deficit reduction deal is the only prescription, even though the “fiscal cliff” is, in fact, a deficit reduction deal. Consider Saxby Chambliss, the preposterously named Senator from Georgia, and this bundle of words:

We have a tendency as a body to just push things down the road. We can’t do that any longer. I was watching the news this morning and looking at Greece. That’s exactly where we’re headed. There are riots in the streets. It’s either going to be done by us, using this opportunity we have now, or the people we sell our bonds to are going to [respond]. You could see riots in the streets of the United States if we don’t do this right. We have the opportunity right now, and it’s imperative that we do, primarily through a $4-5 trillion package over 10 years.

There are riots in Greece precisely because they have engaged in long-term austerity measures, the equivalent of, I don’t know, cutting $4-5 trillion from the budget over ten years. In particular, the Greek rioters object to raising the retirement age, an exact parallel for the potential grand bargain measure of raising the Medicare eligibility age.

In the hands of someone who didn’t want a bargain on the deficit, this would be the ultimate teachable moment. “All those people telling us for years we have to cut the deficit, suddenly don’t want to cut the deficit,” that leader would say. “They’re warning people of the dangers of cutting the deficit, and saying we have to put a deficit plan together to avoid cutting the deficit!” But Obama wants this deal for his legacy. So he’s not going to disabuse anyone of the confusion over the fiscal slope.

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