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Whether you get your news from Fox, CNN, MSNBC or Jon Stewart, all you will hear is that the looming January 1 deadline to reach a budget deal represents a crisis that we should try to avert. Democrats and Republicans in Congress might disagree about what we need to do to avoid the so-called fiscal cliff, although they don't really disagree as much as it appears--everyone agrees, for example, that we should at least extend the Bush tax cuts for middle income taxpayers. What everyone also seems to agree on is that the possibility of expiration of all these tax cuts at once, combined with some fairly drastic mandated spending cuts, represents a significant danger to our economy. Why is raising taxes and cutting government spending such a danger to the economy? And what does it mean that everyone agrees that raising taxes and cutting too much government spending is in fact a grave danger to the economy right now?

Of course it makes sense that if everyone's take home pay decreases, people will have less to spend on whatever they need or want to spend money on, and that will slow economic activity, but remember that that decrease would be balanced out by an increase in government revenues, which would have the effect of reducing the government's need to borrow to pay its bills. And that's supposed to be a good thing too. But if we agree that more consumer spending is better for the economy than a reduction in the amount the government has to borrow, then we are endorsing the existence of deficits in slow economic times. In other words, we are admitting, as President Nixon is supposed to have admitted, that, Republicans and Democrats alike, we are all Keynesians now. (Nixon actually only admitted that he was now a Keynesian, but the phrase stuck.)

And it's not just tax cuts that we agree on. We also agree that cutting government spending would be bad for the economy. Every day Republicans are warning us of the dire effects of sequestration on the Defense budget, not just because of the danger that would pose to national security, but also because defense cuts will harm the economy. If we cut defense spending, we put defense contractors out of work, and we reduce the size of military bases that employ many thousands of people. Obviously that would be bad for the economy just as raising taxes would slow down the economy.

I repeat: if we all agree that going over the fiscal cliff is a bad thing, that necessarily implies that we all agree that reducing the deficit too drastically is a bad thing. We agree that we have to keep taxes low and government spending high. There is nothing else that our fear of the fiscal cliff can mean.

And that means that everything that the deficit hawks have been saying since the recession hit in 2008, and all of the attacks on the Obama administration for allowing the deficit to increase, is complete and utter bullshit. No matter who had been in office the last four years, we would have had an exploding deficit. And we would have allowed that to happen on purpose, because we all agree that balancing the budget would only have made the recession worse.

The real difference between the two parties in the budget negotiations has nothing to do with the deficit. The Democrats' budget proposals will maintain a big fat deficit next year. So will the Republicans.  The difference is in spending and taxing priorities. The Republicans want to maintain a big deficit by keeping defense expenditures high, and by cutting taxes for the wealthy. The Democrats want to maintain a big deficit by keeping social expenditures high, but they also want to increase taxes slightly on the wealthy. Both sides will argue that their taxing and spending priorities are better for the economy, but that is mostly bullshit also. The parties' disagreements are mostly about ideology, not economics.

What is helping the economy the most is keeping the deficit high. Whether we do that by cutting taxes or by increasing spending, and what we spend the money on, are important but only secondary considerations, at least as far as the overall effects on the economy are concerned. And since we agree on all that, that means we will eventually reach agreement on a package that will keep taxes low for the middle class, and will also include only modest cuts in government spending. We will do that because we agree that, at least for now, we need to maintain a fairly large deficit to keep the economy from sliding back in recession.

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Are we going over the fiscal cliff?

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| 13 votes | Vote | Results

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Comment Preferences

  •  Well, yes. (0+ / 0-)
    And that means that everything that the deficit hawks have been saying since the recession hit in 2008, and all of the attacks on the Obama administration for allowing the deficit to increase, is complete and utter bullshit
    I thought everyone in the reality-based world knew that.  Certainly Nobel Laureate Professor Krugman has been documenting it for years...and he's not the only Nobel Laureate to do so.

    To make the argument that the media has a left- or right-wing, or a liberal or a conservative bias, is like asking if the problem with Al-Qaeda is do they use too much oil in their hummus. Al Franken

    by Youffraita on Sun Dec 02, 2012 at 12:10:59 AM PST

    •  well yes, but (0+ / 0-)

      What I'm saying might be common knowledge in the reality-based world, but I still feel the need to belabor the obvious, because I don't hear anyone in the media making this point. They just assume the fiscal cliff is a bad thing without ever explaining why. You rarely hear anyone making the connection that our collective fear of the fiscal cliff necessarily means that everyone of practically every political stripe recognizes the importance of running a big deficit.

      When I hear a few Republicans apologize for making such a big deal about Obama's deficits, I'll stop.

  •  The Uncle Cons hate debt because they are (0+ / 0-)

    afraid of obligations. Why the Uncles on Capitol Hill took jobs that require fulfilling tasks and carrying out obligations is a puzzlement. Perhaps they thought it was a lip-service job.
    Anyway, it is quite true that they don't have to collect more dollars from the citizenry to provide for the general welfare. They can do the same as they did to pay for the warfare -- just authorize the Treasury to ship the dollars directly to the providers of goods and services. The only drawback there is the same as with education grants and the transportation fund--the Wall Street boys won't get their cut (interest on bonds).
    You see, all the nattering about cuts isn't about tax cuts or even rates. What it is really about is that the unearned income of bond clippers and speculators and financial engineers has slowed to a trickle (2.5% instead of 8%) and even tax free that's an unsustainable cut, if you happen to be a person obsessed with accumulating wealth. That the Uncles are suffering from Rumpelstiltskin syndrome doesn't change the fact that their behavior is having a ripple effect throughout the globe.  Dollars are a reserve currency, and rightly so because we the people who authorize its issue have proved trustworthy on the whole. However, the function of currency is, like the current in a stream, motion and mobility. So, when currency is hoarded, it's like damming up a stream. The folks down-stream experience a drought. Their crops desiccate and their cattle die of thirst -- unless someone thinks ahead to provide them with alternative springs. Which, if there is a good provider of public services in place, happens almost automatically. See, the thing about good government is that, like good parenting, you don't see it.
    This characteristic invisibility is what makes good government unattractive to the Uncle Cons. Because, more than anything, they are people who want to be seen, to be felt, to grand stand and make a spectacle of themselves. What the Uncle Cons really want to be is entertainers. The sting has to be seen to work.

    We organize governments to provide benefits and prevent abuse.

    by hannah on Sun Dec 02, 2012 at 12:51:07 AM PST

  •  i'm (2+ / 0-)
    Recommended by:
    Garrett, mahakali overdrive

    not a Keynesian. Isn't Keynes some knuckledragging dude who believed in money? What a smoothbrain. There is no money. Money is but a group agreement. And a recent one at that. First concocted about 7000 BCE. It is only as Real as people say it is. I say it's not. Therefore, it isn't.

  •  we have all accepted W's "Military Keynesianism" (0+ / 0-)

    until the day that we no longer occupy Iraq, Afghanistan...the rest of the world...He told us this was what we would be doing to fix the economy in 2000 as it did a nosedive, and then in 2001 he sold us a bill of goods called the Tax Plan. If that plan actually worked as it should have, why is there a supposed "fiscal cliff" and where is the $5.6 Trillion Surplus they promised us?

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