Sunday, November 11, 2012

Conservatives fear "fiscal cliff"

By Frank Moraes

You remember how I've spent much of the last year ranting about how unserious Mitt Romney and Paul Ryan are about dealing with the budget deficit? My main argument: you don't start a discussion of the budget deficit by making it worse. Tax cuts may be a great idea, but that's a different issue. You just aren't being serious if you say, "I want to cut the budget and the first thing I'm going to do it reduce revenue and increase spending." And that is what both of these guys have said.

It isn't just partisan Republicans who do this. Remember Alan Simpson and Erskine Bowles, the two Very Serious gentlemen who have been screaming that the sky is falling for the last many years? Two years ago, they had their deficit reduction committee, which came up with a plan that the committee wouldn't vote for. (Eventually, Simpson and Bowles released their own report that journalists erroneously refer to as the the committee report.) That plan started with -- wait for it! -- a reduction in the top marginal tax rate.

But wait! Isn't Erskine Bowles a Democrat? Yes he is. But he's not that into it. Or perhaps better: so what? Being a Democrat doesn't mean you are liberal; it only means you aren't a complete freak. It is better to think of Bowles as a board member of Morgan Stanley. Not only is that true, but it gets at the heart of who he is and what interests he has. Let me go a little deeper.

Why does anyone care about the deficit? The government must borrow money to finance the deficit. If the economy were not depressed, this government borrowing would reduce the amount of money available to businesses for their own projects. Given that there would be more demand for this money than the supply, interest rates would go up. This is not the situation now and probably for the next couple of years. But eventually, the federal deficit could make the cost of doing business more expensive.

What's more, it could cause inflation, and if you are a follower of the Austrian school of economics, you just know it will. And this seems to include Erskine Bowles. Two years ago, he claimed that within two years interest rates would skyrocket. It is two years later and interest rates are two percentage points lower than they were when Bowles went all Chicken Little on us. So Bowles was completely wrong. And you know what that means to the fools in media: he's a genius!

The more important point here is not just that Erskine Bowles is an idiot; it is that people like him care about the deficit because they fear it will cause the rentiers (the owner class) to make less money than they normally would. Certainly, this could also affect workers. But mostly, the deficit is just a concern of the 1% and all their apologists in Very Serious media (who are all pretty much in the upper class).

Fiscal Cliff!

On Wednesday, in a Washington Post op-ed, Erskine Bowles argued, "Make a Deficit Deal Now." Jonathan Chait dismantled the argument. Bowles went full-tilt Chicken Little again by claiming, "Going over the fiscal cliff would mean allowing a massive and immediate cut to nearly every major government agency and activity, including those vital to our national security or economic growth." Chait minced no words, "That is totally false."

The whole phrase "fiscal cliff" is a bad one. If we don't stop the tax increases and budget cuts by the first of the year, nothing happens suddenly. In fact, the government can pass another tax cut and make it retroactive so that there is no tax hike at all. So all this hysteria makes no sense, unless...

Unless these people are worried about something else. And they are. The truth is that the Democrats have great leverage in his battle -- especially if they are willing to push the fight into next year. If the Republicans want to keep the top tax rate from going up by 4.6 percentage points to the still ridiculously slow 39.6%, they must get a deal done this year. If they wait until next year, they will have no hope. This is why Erskine Bowles wants to pretend that we must make a deal now. Now! Now! He even made the preposterous claim that not making a deal now will help the Republicans:

[M]any partisans on both sides seem to think they have the upper hand in the negotiation... Republicans see large domestic spending cuts, tax increases on poor and middle-income Americans and the need to increase the debt ceiling as their own leverage points.

This is simply not true. As Chait noted: who is it that is pushing for a deal now and is so afraid of the fiscal cliff? It's not the Democrats. It's not President Obama. It's Morgan Stanley trustee Erskine Bowles. It is The Wall Street Journal. What does that tell you?

Afterword

I have heard word that Erskine Bowles may replace Treasury Secretary Tim Geithner. This may just be wishful thinking on the part of conservatives. Anyway, I'm not sure that Bowles would necessarily be any worse than Geithner. The problem with Bowles being named Treasury Secretary is that it would be a very bad symbolic move. Just as bad, it would mean that Obama would be continuing to surround himself with the very people who caused the financial meltdown. It would be nice to think that Obama has learned something these last 4 years. But I'm not counting on it.

Update

Sign the petition against Erskine Bowles as Tresury Secretary.

(Cross-posted at Frankly Curious.)

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