Economics for the 99% - Christmas at the (fiscal) Cliff
Thursday, 20 December 2012 09:09
By John Weeks.
Over the last few weeks a hysteria has inflicted a very large number of people with the anxiety that the world as we know it may soon end, on a specific date this very month.
I refer, of course to the mass hysteria induced by the approach of the putative fiscal cliff, along side which the Mayan end of the world prediction seems quite credible. This precipitous fiscal drop would result from a law passed by Congress in August 2011, rather than a calendar-based calculation. Fiscal doom [Part of a date, inscription on a Mayan stela. If you are reading this after 21st December (or lurks, ready to pounce, at 12:01 A M on 23rd by some interpretations), you should live the first of January 2013. Enough to ruin to fall off the fiscal cliff. Full image at: your Christmas.
How did we come to this historic moment, when failure to cut expenditures and/ or raise taxes will bring on the apocalypse? The ominous date inexorably approaches solely because of that law passed by Congress, the Budget Control Act, on 2 August 2011 (whether the Maya calendar flags this pre-apocalyptic date I do not know). While I am not a constitutional lawyer, it is my understanding that a law Congress passes, Congress can amend or repeal. This would seem the simplest and most intelligent way of cancelling or at least delaying the end of the economy as we know it.
This sensible solution to a self-created problem will not occur. Those who inflicted the bone-headed rules in the Budget Control Act on us had, and have, a clear agenda. Not content with their ill-got gains over the last three decades, they would further redistribute income from the 99 percent to the one percent through the federal budget (and especially to the 0.1 percent). This, the same right-wing agenda since time began (check the Mayan calendar), explains why in the absence of action to prevent it, come 1/1/2013, about $110 billion in budget cuts will allegedly kick-in.
I write "allegedly", because, as pointed out above, what Congress does, it can undo. If the Democratic president and the Republican speaker of the House reach no agreement before 12:01 AM on 1/1/2013, what stops them from doing so on the next day? The answer is, "nothing". Therefore, my advice to the president (also made by Paul Krugman in the New York Times a month ago) is, "don't accept any cuts". But, wait! There lies disaster, doesn't it? Actually, no. The mandated expenditure reduction would not all occur in the few seconds after midnight 31 December 2012. If the president holds out, the trickle of expenditure cuts and tax increases will act like the apocryphal Chinese water torture on the Republican members of the House of Representatives.
Second, while certainly unwise to the point of idiocy, expenditure reduction of a bit over $100 billion would not bring disaster. At the end of this year the national production of the United States (aka gross national production or GDP) will be about $16 trillion. This means that the "automatic" budget cuts would be 0.7 percent of GDP. Add to that the end of the Bush era tax cuts, which mostly apply to the rich and hyper-rich. The combination of the cuts and taxes would have secondary expenditure effects, called the "multiplier process".
Any realistic estimate of the size of the increased tax revenue and the multiplier indicates that when combined with the "automatic" $110 billion, the contractionary effect would be between one and 1.5 percent of GDP. Since the economy is growing at about three percent, the fall off the cliff would prove rather a disappointment to the purveyors of apocalypse, a slow down in the growth rate. And that generous estimate of the likely slow down itself presumes that the president and the reactionary House Republicans reach no agreement through all of 2013. Not much of a cliff.
The economy and the population might suffer a slight stubbing of a toe and little more for the immediate future. The "fiscal cliff" and the Mayan apocalypse have quite a bit in common. They are both products of superstition and ignorance. At least the ignorance of Mayans had a real basis, the absence of a scientific explanation of natural phenomenon. The fiscal cliff stands out as pure superstition, hyped by those who crave the destruction of all vestiges of social protection.
The "cliff" does not represent the result of some natural force of fiscal plate tectonics. Reactionaries created it and spineless "moderates" and "liberals" connived. Should we fall off it, no one would notice for months. During these months a president dedicated to the general welfare would have more than sufficient time to force though a progressive federal budget. If not, he could blame the House reactionaries and their billionaire funders, laying the basis for their demise in the 2014 mid-term elections. During the 1948 presidential campaign in a speech in Harrisburg, Illinois, from the back of a train, Harry Truman told his audience, "When a bunch of Republican reactionaries are in control of the Congress, then the people get reactionary laws". Someone in the crowd shouted out what would then become the motto of a campaign that against all predictions would carry Truman back to the White House, "Give 'em hell, Harry!"
Give 'em hell, Barack, and be the president people elected you to be.
Much the same argument as made here you can find in an article by James Galbraith.