If You Believe in the Fiscal Cliff…

by Benjamin Studebaker

Lest we forget, the fiscal cliff is still coming–the dismal set of negative economic consequences that come from cutting government spending and raising taxes too fast in the face of a weak economic recovery. While 87% of the general public do not realise that the fiscal cliff is about preventing spending cuts rather than making them, regular readers (and those of you who read the linked pieces) know better. That’s all ground we have covered. However, that there is a particularly interesting implication of belief in the danger of the fiscal cliff that I have yet to discuss, and this I seek to remedy.

Let’s look at what precisely the argument that the fiscal cliff is something we need to prevent is saying:

  1. The government has an obligation to raise economic growth and reduce unemployment.
  2. Austerity (any combination of large spending cuts and tax increases) reduces economic growth and raises unemployment in the current economic climate.
  3. The fiscal cliff consists of large spending cuts and tax increases and is consequently a form of austerity.
  4. Therefore, the fiscal cliff will, as the CBO report suggests, reduce economic growth and raise unemployment.
  5. Therefore, the government has an obligation to stop the fiscal cliff.

This is fairly straightforward, is it not? We can all agree to this, right? But if you agree with the above argument, surely you must also agree with this:

  1. The government has an obligation to raise economic growth and reduce unemployment.
  2. Stimulus (any combination of large spending increases and tax cuts–the inverse of austerity) raises economic growth and reduces unemployment in the current economic climate.
  3. The American Jobs Act, American Reinvestment and Recovery Act, and other such bills, past, present, and future consist of large spending increases and tax cuts and are consequently stimulus bills.
  4. Therefore all of these various stimulus bills raise economic growth and reduce unemployment.
  5. Therefore, the government has an obligation to pass stimulus bills.

Now, let’s not forget, just about everyone in congress, including the republicans, agrees with the argument against the fiscal cliff. However, from the very same basic premises, we can come to a pro-stimulus position. If reducing spending and raising taxes is bad for the economy, then raising spending and cutting taxes must be good for it.

In other words, if you believe in the fiscal cliff…you must be a Keynesian. You must buy into the power of the state to impact economic outcomes with its fiscal (and monetary) policy. Belief in the fiscal cliff is not compatible with believing in expansionary austerity (the notion that spending cuts and tax increases lead to higher growth rates).

So what we have here is a Republican Party that is completely contradicting everything it claimed to believe over the last few years about fiscal policy. Up is down. Pigs fly. It is no small wonder so many people think that the cliff is a problem of too much debt rather than one of too large cuts, considering that the republicans spent the last two years starting fights over the debt ceiling and claiming that the sky was falling due to Obama’s spending policies. What is amazing is that the republicans have managed to get away with U-turning on this issue without anyone forcing them to admit their contradiction, without any of the economic policies they have previously advanced being discredited. 

It isn’t the first time, either. Remember ads like this one?

Here you have Mitt Romney telling you that Obama defence cuts threaten 130,000 Virginia jobs, and that he will, in contrast, cut taxes and create over 300,000 jobs. The defence cuts are a kind of austerity, the tax cut and the 300,000 new jobs Romney claimed he would create were kinds of stimulus.  This was a monumental concession that Keynes was right out of the Republican Party. If defence cuts kills jobs, other cuts kill jobs. If raising defence spending creates jobs, raising other kinds of spending creates jobs. If cutting taxes creates jobs by putting more money in the pockets of people, raising spending creates jobs by doing the very same thing. To argue otherwise is to be in logical contradiction. Just because the spending is on weapons does not mean that the spending is different in any important macroeconomic sense from other spending. Weaponised Keynesianism is still Keynesianism, and it works the other way as well–democrats and the American left must also concede that cutting defence spending can kill jobs just as easily as cutting entitlements can.

So what’s going on here? How can the Republican Party be in such blatant economic contradiction with itself? Two possibilities:

  1. Incompetence: The Republican Party does not think logically on economic matters and does not see its own contradictions. 
  2. Malevolence: The Republican Party is a party of sycophants who think they can argue for opposite things in order to pander to the public and to serve the lobbyists and interest groups that fund them.

In cases like these, I like to apply Hanlon’s Razor:

Never attribute to malice that which is adequately explained by stupidity.

That, however, is merely my view. I leave it to the reader to determine which account is the more persuasive, as I cannot prove either with anything like certainty. The thoughts and motivations of others are quite difficult to know. I urge the reader to put this discontinuity to cliff-savvy republicans to see what sort of answer they provide. Will they decide that they don’t fear the cliff after all? Will they decide to go in for Keynes and stimulus? Will they struggle incoherently to reconcile the irreconcilable? Let’s put this problem to them and not let them get away with arguing two opposing things at once.