I was watching some Up with Chris this morning (update: posted above) and Hayes about came unglued making the point that few in Washington seems to get—that the problem with the fiscal slope (the set of tax increases and spending cuts set to take effect automatically next year) is that it will make the federal deficit too small. And yet we have the same parade of rattling deficit scolds who have been gravely intoning about how immoral it is to leave such a debt load to our children suddenly up in arms about this fiscal slope.
Consider this throwaway line from Andrew Sullivan:
We are facing automatic massive tax hikes and huge, crude spending cuts starting January 1 if we cannot get a bipartisan deal on Bowles-Simpson lines (of course there is room for tweaking and bargaining). A failure to get that kind of deal would tip the US and the world into a new global depression.
Every single thing about this is wrong or misleading. First, it’s true that the fiscal slope’s massive dose of austerity would probably cause a recession, but they will take effect only gradually. There is plenty of time to get a deal before the cumulative impact on aggregate demand would be noticeable, and the extra taxes collected could even be rebated to restore consumer spending. Sullivan’s implication that there are bone-crunching effects starting January 1 is wrong.
But more importantly, Bowles-Simpson is in no universe a solution to the problem of the fiscal slope. We could simply return to the status quo ante, ignoring this Ahab quest for a Grand Bipartisan Bargain altogether, and the problem would be averted. Proposing Bowles-Simpson (remember, allegedly a deficit reduction plan) as a solution for the fiscal slope is like saying, “There will be a famine, so therefore we must stop growing so much food.” The only conceivable reason for it would be to entice Republicans—but remember, the president holds all the cards after January 1st.
As Matt Yglesias points out, the GOP has no leverage here and things will likely play out as Obama desires. Dems get a bit more revenue, and the House gets to vote for tax cuts after they’ve gone up. In fact, the NYT today has a story about how John Boehner has been bluntly warning his caucus they’re going to have to swallow some painful votes.
But this moment has starkly revealed the fiscal scolds for what they are: a bunch of frauds. Not Sullivan, I think, he seems more just muddled by a weird crush on the Bowles-Simpson plan, but nearly all of the rest. Read this incredibly duplicitous letter from a bunch of CEOs sounding the alarm about this issue. What’s their recommended solution? Why, tax reform which just coincidentally includes lower rates for everyone.
Nobody cares about the deficit, least of all the people who whine about it constantly. Their preferences have been revealed.
UPDATE: Paul Krugman has more, including an amazing catch from a deficit scold org saying we should only cut “low priority” spending. Wonder what that means…