Serious People Could be Seriously Embarrassed: Why It’s Important that We Not Go Off the "Fiscal Cliff"
Dean Baker, CEPR
Friday, 14 December 2012 09:51
Much of the media has spent the last month and a half hyping the impact of the “fiscal cliff,” the tax increases and spending cuts that are scheduled to take effect at the end of the year. They have been warning of a recession and other dire consequences if a deal is not struck by December 31st. As we are now getting down to the final two weeks and the prospect that there will not be a deal becomes more likely, many in the media are getting more frantic.
What they fear is yet another huge embarrassment, if people see the deadline come and go and the economy doesn’t crash and the world doesn’t end.
In other words, if January 1, 2013 comes and there is no deal, we will likely see that the Serious People were again out to lunch. This will be yet another blow to the credibility of the people who are telling us that we have to cut Social Security and Medicare and do all sorts of other things that somehow always seem to have the effect of hurting the poor and middle class.
Of course many may say that the Serious People have recovered from past humiliations. After all, how long did it take them to get over the fact that not one of them was able to see the $8 trillion housing bubble whose collapse wrecked the economy? And there can be little doubt that they will quickly rewrite the history so that none of them was actually issuing the dire warnings we keep hearing about the fiscal cliff.
But some people will remember, and there will always be people rude enough to bring up past mistakes. So the Serious People really do have a lot at stake here. If we go past January 1 and there is no deal, they will be very unhappy.
Crafting a boom economy
By: Jim VandeHei and Mike Allen, Politico
December 11, 2012 04:35 AM EST
What is striking, though, is that if you put everyone from President Barack Obama and Senate Majority Whip Dick Durbin to House Speaker John Boehner and Portman on truth serum, they basically agree: Washington could set the economy on a very safe course, if not on fire, through a half-dozen policies that are not partisan.
The country’s most influential CEOs, who have been meeting with Obama and congressional leaders on these very topics, are telling them if they do some or all of this, investment, market growth and jobs will quickly follow.
Bank of America CEO Brian Moynihan said long-term commitments to measures such as tax reform and trade would provide a “certainty premium” that would help bring corporate cash off the sidelines. “If we can just allow people to keep their confidence up by getting some of these issues off the table,” he said, “you would see the economy grow and momentum continue to build, and unemployment continue to ease down, and housing starts [go] up and housing prices [go] up. All that will continue to build on itself.”
Officials largely agree Congress should cut domestic spending, including a nice chunk out of defense, because the budget is bloated, outdated and often designed to placate specific lawmakers or defense contractors. But it will take entitlement changes, which both sides say are inevitable, to get U.S. debt levels where they need to be, which in turn plays into investment into everything from U.S. companies to Treasury bills.
“The critical problem is entitlement reform, and if taxes even have to go up to get an entitlement deal done, that still solves the vast majority of the issue,” said Kenneth Griffin, who founded Citadel LLC, a hedge fund, and is worth an estimated $3 billion. He is a Republican.
Nearly every lawmaker and staffer will tell you privately that they know the Social Security retirement age needs to go up, the rate of growth of benefits needs to be slowed on a sliding scale that protects the poor, the cap on income subjected to the tax that finances the program needs to rise and the rich should get smaller or no payout from the program.
They will also tell you Medicare, which is on pace to be insolvent in 12 years, is a much, much bigger mess and threat to long-term economic vitality – and much harder to solve. Yes, the rich need to get smaller benefits, but that is almost meaningless in terms of fixing it. Ultimately, many Americans will have to get less generous benefits that start to kick in at an older age – and those changes need to start a decade from now. Otherwise, the math simply doesn’t work.
Delusions of Wisdom
Paul Krugman, The New York Times
December 11, 2012, 3:33 pm
In said (above) piece they talk to various Very Serious People, and divine the insider consensus on What Must Be Done – which mainly seems to involve, naturally, cutting Social Security and Medicare while reducing corporate tax rates.
What I find remarkable about this piece is that after everything that has happened these past five years or so, Jim VandeHei and Mike Allen still take it for granted that these people actually know what they’re talking about; the whole premise of the article is that the insiders really do have the key, not just to good policy, but to achieving a dramatic rise in the growth rate.
Now, they don’t tell us everyone they talked to; but I think we can safely assume that, with few exceptions, the insiders in question:
- Believed that financial deregulation was a great idea, because bankers had really learned to manage risk
- Did not believe that there was a housing bubble
- Insisted that budget deficits, even in a depressed economy, would send interest rates soaring any day now
- Insisted that austerity measures would promote recovery, not hurt it, because of the confidence fairy
The whole theme of the Politico piece is that great things would happen if only the insiders could override all this messy democracy stuff. But the real lesson is that those insiders are not only self-dealing, but profoundly ignorant and wrong-headed. It’s too bad that so many journalists still can’t see that.
Why is Washington Obsessing About the Deficit and Not Jobs and Wages?
Thursday, December 13, 2012
So why are we debating how to cut the deficit when we should be debating how best to use the cheap money we can borrow from the rest of the world to put more Americans to work?
Because too many Democrats inside and outside the Beltway have ingested the deficit cool-aide that the “serious people” on Wall Street have serving for two decades.
And the President has been all too willing to legitimize their deficit obsession by freezing federal salaries, appointing a deficit commission, and, now that the election is over, going back to deficit-speak.
A month after the election Obama was on Bloomberg Television saying business leaders need “a deal on long-term deficit reduction” before they’ll increase hiring.
That’s just not true. Before they’ll increase hiring they need customers.