Saturday, December 1, 2012

Manufacturing a Fiscal Cliff

The so-called “fiscal cliff” is a manufactured crisis and political scam. It is designed to force cuts to government social programs that have wide support among the American population.

The now impending fiscal cliff deadline is the result of an agreement between Obama and the Republicans during last year’s debt ceiling negotiation.

However, the fear of the presumed consequences of going over the fiscal cliff reveals a number of things about the state of our economy. First, government spending has a stimulative rather than depressive effect on economic growth. It is for this reason that all parties, including the anti-government spending Republicans, want to avoid the cliff because they know a sharp drop in spending will impact the economic recovery.  

Second, concern over the fiscal cliff also demonstrates that the prolonged economic crisis is due more to insufficient consumer demand than confidence, uncertainty, or the regulatory costs of doing business.  This is why no one wants to see taxes raised on the middle class because it would dampen consumer spending and make the economy even worse.

Together, these two points would suggest a very different set of policies to get us out of the economic crisis than what has been advocated by the deficit hawks. Namely, more government spending and higher wages for workers, not fiscal austerity.

But the fiscal cliff crisis, like various crises before it, is being used to generate anxiety, fear, and hysteria so that powerful interests can extract concessions from those who have already suffered the most – the working and middle classes.

There is the bogus notion that the fiscal cliff must be resolved through “shared sacrifice”. That is, if we are going to ask the rich to pay higher taxes, it is only fair to ask Americans to accept “entitlement” reform, which means cuts to Social Security, Medicare, and Medicaid.  This is referred to as the “grand bargain”.

There is one big problem with this argument – the working and middle classes have been sacrificing for the past thirty years through wage stagnation, social insecurity, benefit givebacks, downward mobility, job loss, and generalized economic deprivation. These so-called entitlement programs are what little is left of the tattered public safety net that working Americans depend on. 

Finally, there’s no necessary reason why this contrived crisis must be resolved before the end of the year.  All of the tax and spending changes that would kick in on January 1st can be easily addressed and modified when Congress returns after the New Year.  This would also eliminate the false urgency used as an excuse to gut popular social insurance programs. 

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