Daily Archives: November 14, 2012

Embrace the Fiscal Cliff

Truth Out has an op-ed Embrace the Fiscal Cliff  by Simon Johnson, Moyers & Company. The original source of this op-ed is on Bill Moyers’ web site.

In the post-election commentary, you will hear numerous voices – definitely on the right but also on the left – arguing that we could not possibly increase taxes this year or next, as this will push our economy back into recession. Do not believe them – this is just the latest disinformation put out by people who agree with Grover Norquist that the real goal of politics should always and everywhere be to reduce taxes and shrink the size of government. It is exactly such policies that have brought us to our current economic predicament.
But once he has vetoed Bush cuts, President Obama can immediately propose a new set of tax cuts – the Obama tax cuts – to Congress. These would cut taxes for lower income Americans, for example by lowering payroll taxes (which should also encourage job creation). Would the House Republicans really vote against a tax cut for 100 million Americans?

These new tax cuts should be linked to the state of the economy – for example, they could phase out automatically as employment rises relative to population. This would both help the economy in the short-run and put our budget onto a much more sound footing for the coming decades.

This last paragraph is an excellent example of making policy that adjusts to the economic cycles.  Rather than enshrining permanent economic shifts in government policy into law to solve temporary problems, we enact temporary solutions for temporary problems.

By enacting hard to get rid of tax cuts when they were not needed, George Bush and the Congress at the time created a structural deficit in the budget.  In other words a deficit that will still be there even when the economy was at full employment.  In fact the economy was at full employment when they foolishly enacted permanent tax cuts when temporary tax cuts were not even needed.

There are people who do not seem able to or willing to understand the difference between what George Bush did and what President Obama ought to be doing now.  In a cyclical situation, timing is everything for the right policy.  On the other hand timing is nothing for a policy that is permanently wrong.

Is the “Fiscal Cliff” a Fiction?

The Real News Network has the interview Is the “Fiscal Cliff” a Fiction?

I have selected some pieces from the transcript:

But I think the important thing is for people everywhere—for Americans, for other people, but particularly people in the United States—to realize that this deficit is not a problem. Once you realize it’s not a problem, then it becomes easier to argue against cuts in it, whether Obama’s for them or anyone else is for them. I mean, there are a lot of people out there on the left or whose hearts are in the right place who really do think it’s a problem if the government is spending a lot more money than it’s taking in. That’s a problem, that we have a debt that’s equal to annual GNP. But it’s not a problem, and people ought to realize it’s not a problem
The first thing to realize is almost 40 percent of the U.S. Debt is owned by the U.S. Government itself or by state governments. Another 20 percent or so is held by various private pension funds.

So think about that for a moment. The biggest single holder of U.S. debt is the Social Security system. The interest rate goes up. What happens to [incompr.] The Social Security system has more money and is more solvent. I’m not for interest rates going up, but what I’m saying is it’s not—paying this interest does not mean money down a rat hole. It’s not just throwing money away. People hold those assets. And many of the people who hold them are people like you and me—I mean, particularly me, because I’m retired. So those interest payments in part are what fund people’s pensions. And that should be kept in mind when you’re thinking about whether or not the debt is a problem.

The whole interview puts together in one place a lot of the economic principles I have been talking about in various articles on this blog.

Based on the comments on The Real News Network web site, there seem to be two camps. The camp to which I belong, is the one that says “finally an interview that puts many of the economic issues together in one place.” The other camp seems to be, “this guys an idiot and can’t possible know what he is talking about.”

For the second camp, I hark back to Mark Twain’s famous quote, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Of course the other side would just repeat that quote to me.