Negative Interest

Fun with fiscal cliffs

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There’s nothing too surprising in this year’s compilation of the Reason staff’s presidential preferences (hint: almost everyone supports Gary Johnson). I did find Shikha Dalmia’s explanation of her support for Johnson especially entertaining:

Gary Johnson. He is a pragmatic libertarian who offers a principled alternative to the statism of the right (that would outlaw same-sex marriage and abortion; criminalize drugs; erect barriers to keep willing foreign workers away from willing Americans, etc.) and the statism of the left (that would enact crade-to-grave entitlements; confiscate wealth rather than curb spending to avoid going off the fiscal cliff etc.).

You see, Gary Johnson wants to curb spending to avoid going off the fiscal cliff, which would mean…the expiration of the Bush tax cuts and the payroll tax cut and mandatory spending cuts to defense and discretionary spending. Dalmia doesn’t seem to realize that the fiscal cliff significantly curbs spending, which is part of the reason it terrifies people. James Kwak points out the folly of the typical deficit hawk view of the cliff:

It’s too obvious to waste more than a sentence spelling out what’s wrong here, so here it is: “Going over” the “fiscal cliff” is the single best thing we could do to “restore the United States’ long-term fiscal footing.” The CEOs of every big bank (who signed the letter) must know that. Right?

There are valid arguments against going over the fiscal cliff, but the national debt is not one of them. Going over the cliff would do more to address the long-term debt than anything any politician has proposed.

I am genuinely surprised that going over the fiscal cliff has no support in libertarian circles. It represents one of the best opportunities to shrink the size of government you’re going to find. The tax hikes won’t be popular with libertarians, but it will likely be easier to lower taxes in the future than to increase spending. Matt Yglesias notes that “[i]f Congress does nothing, these three factors will drive the budget deficit to less than 1 percent of GDP by 2018 and then stay below that level through 2022.” The state of reporting on the fiscal cliff has been so poor (and in some cases, deliberately confusing) that many people don’t realize that it improves America’s fiscal standing (if the deficit-to-GDP ratio is your measurement of fiscal health).

The only real answer is that nobody actually cares about the deficit. Going over the fiscal cliff may be the best way to achieve libertarian goals on defense spending and nondefense discretionary spending, but negotiations over avoiding the fiscal cliff represents the best opportunity to slash the welfare state and keep higher income tax rates relatively low.


Written by negativeinterest

October 25, 2012 at 5:50 pm

Posted in Uncategorized

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