Is the Fiscal Cliff the next Y2K? I’ve heard some compare the two, I personally disagree, I think the outcome could be extremely impactful on the economy next year, depending on what kind of deal gets cut (and a deal will get cut in the end).
But Jonathan Chait at New York Magazine is looking at it from a different angle. What he sees is a massive effort by right-wing and center-right wing low tax advocate corporatists to turn this into a much scarier boogeyman than it really should be…
Republicans hate the fiscal cliff because it eliminates the deficit in ways they hate — mostly by ending all of the Bush tax cuts, along with some spending cuts that take a huge bite out of the Pentagon. But another group also hates the fiscal cliff for different reasons. The centrist anti-deficit groups funded by Pete Peterson hate the fiscal cliff because it creates an avenue for bringing revenue and outlays in line in a way that they don’t want. It basically creates a situation where the deficit is solved in ways that are more left-wing than even Obama proposes, giving him leverage to craft a solution largely along his own preferred lines, rather than through the “grand bargain” they have been fruitlessly trying to craft since 2010. And so they are issuing dire warnings about the fiscal cliff that are either completely disingenuous or reveal a total failure to understand what they’re complaining about.
Chait uses the threat of “spiking interest rates” as an example of this fear-mongering; obviously if true sequestration took place across the board, taxes reverted higher and all that spending ceased at once, interest rates would do no such thing. We’d be plunging into a depression and rates, if anything, would drop.
Austrians, please reserve your rotten tomatoes, I am passing on a theory and not endorsing it.
Head over for the whole theory, including the involvement of Blankfein, Dimon et al in these scare tactics.
Read Joe Weisenthal’s take on the same concept here: