Posted by AzBlueMeanie:
I am sure that GOP wordmeister Frank Luntz has a satisfied smile on his face with how the "lamestream" media has has fully bought into his framing of a "fiscal cliff" -- it is neither "fiscal," nor is it a "cliff." (I have used the term here, but I always put it in quotes.) We should call it the "austerity crisis" -- but that reminds Americans of the errors the European Union has made with austerity measures.
Suzy Khimm at Ezra Klein's Wonkblog explains The fiscal cliff is an austerity crisis:
Reading the headlines this week, you might get the impression that the country was hurtling towards a huge deficit catastrophe on Dec. 31. From the front page of Thursday’s New York Times (“Back to Work: Obama Greeted by Looming Fiscal Crisis”) to today’s Wall Street Journal (“Pressure Rises on Fiscal Crisis”), the rhetoric suggests that the U.S. is facing a crisis akin to problems that have engulfed Europe. (A Yahoo headline from 2011: “The U.S. Fiscal Crisis: Just Like Greece, With One Exception.”)
In fact, the problem with the fiscal cliff is precisely the opposite: The tax hikes and automatic spending cuts that would kick in after Dec 31 would sharply curb our federal deficit through enacting major, sudden austerity measures that would save the U.S. government about $720 billion in 2013 alone, according to the Bank of America’s estimates, which would be about 5.1 percent of GDP.
“If we let all of those changes [happen], there would be a sharp reduction in the budget deficit—in decline in debt to GDP, falling deficits as a share of GDP,” says Chad Stone, chief economist at the Center for Budget and Policy Priorities. “It’s all a dream for people who want really sharp austerity.”
So the reason that the fiscal cliff could push us into another recession in 2013 is because it enacts too much deficit reduction upfront, not too little.
The folks who want to avoid the fiscal cliff for fear of its impact on a still-faltering economy are effectively arguing that now isn’t the time to enact austerity measures: Instead of taking money out of government programs and people’s paychecks, the government should be putting that money into the economy. And certain parts of the fiscal cliff bring more bang for the buck than others, CBBP’s Stone points out: Payroll tax cuts and unemployment benefits are more effective way to boost economic growth in the short-term than the Bush tax cuts for upper-income Americans, according to a new report from the Congressional Budget Office.
So if it’s immediate austerity that we want to avoid, and stimulus that should take its place, why is there so much talk about the need for major deficit reduction as a solution to the fiscal cliff? It’s because lawmakers decided months and years ago that they wanted this austerity crisis to happen as a way of creating leverage for more sensible, long-term deficit reduction measures.
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The essential dilemma, as both the U.S. and European countries like Greece have begun to discover, is that weak economies don’t respond well to immediate austerity measures. The deficit hawks arguing for a bipartisan “grand bargain” or similarly ambitious deficit-reduction plan want to replace the kind of austerity that we’re facing now with austerity that takes effect further down the road, not undo it altogether. Others simply want to put austerity off for at least a year by extending all the tax cuts and suspending the sequester.
All of these solutions affirm one underlying truth: The reason the fiscal cliff is so scary is that it’s an austerity crisis.
Ezra Klein says We need a new name for the 'fiscal cliff' to replace the "cliff" metaphor with something more sensible. Maybe a "curb"?
Paul Krugman argues that the "fiscal cliff" isn't really a cliff. Let's not make a deal:
It's worth pointing out that the fiscal cliff isn't really a cliff. It's not like the debt-ceiling confrontation, where terrible things might well have happened right away if the deadline had been missed. This time, nothing very bad will happen to the economy if agreement isn't reached until a few weeks or even a few months into 2013. So there's time to bargain.
Matt Yglesias makes a similar point. REMINDER: The "Fiscal Cliff" Is Nothing Like a Cliff:
A salient fact about non-metaphorical cliffs is that falling over them is generally irreversible. If the cliff is high enough that falling off of it would kill you, then if you fall off you're going to die and that's the end of it. The 'fiscal cliff' by contrast isn't like that at all.
Rather, it's a set of policy changes—mostly tax hikes plus some steep spending cuts—that if they were all locked into place would constitute a significant drag on economic growth over the course of a year. But if the Bush tax cuts fully expire on a Tuesday morning it's not as if some catastrophe strikes on Wednesday where suddenly middle class families have no money. It's true that if the new higher rates were to be locked in, then the medium-term drag on middle class take home pay would delay the deleveraging cycle and damage the recovery. But to resolve that, all you need to do is introduce a new package of middle class tax cuts on Wednesday afternoon, have congress pass it on Thursday, and then the president signs it on Friday. The fact that taxes were higher for three days—or even three weeks—is simply not that consequential.
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There's no particularly large virtue to "averting" the fiscal cliff on Day N-3 versus "going over the fiscal cliff" and then fixing it in retrospect on Day N+3. If "going over the cliff" gives the White House leverage to lock a better medium-term fiscal policy in place, then going over the cliff is a no brainer. Because there is no cliff.
This is the position taken by Senator Patty Murray (D-WA) in a Brookings Institution Town Hall this past July. If the Republicans do not agree to higher taxes on earners making over $250,000 year, we are going "cliff diving" on January 1 to reset our national tax policies. Then it is up to Republicans to decide whether they want to vote for the "Obama Middle Class Tax Cuts" package right away, or to harm all Americans out of ill will and spite by blocking the package as leverage to preserve tax cuts for the "top 2%" that the GOP represents. Americans decided this issue on election day. They will punish the Republicans severely for their continued obstruction.