Investor's Business Daily seems to have come down with a case multiple personality disorder recently. They published a piece on Wednesday noting that the U.S. deficit is actually shrinking at a faster clip than at any time since the demobilization at the end of the second world war. The argument that the article put forward is that since we are already shrinking the deficit at this time, the contraction caused by going over the so-called "fiscal cliff" would have a negative impact on economic growth, and that we should avoid this outcome at all costs. A sample:
If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn't risk backfiring. That's why the best way to address the fiscal cliff likely is to postpone it.There certainly is a case to be made here, but I seemed to recall a very different tone coming from the same publication in the relatively recent past. Here's IBD in August talking about Obama's level of success vis-a-vis deficit reduction:
While long-term deficit reduction is important and deficits remain very large by historical standards, the reality is that the government already has its foot on the brakes.
In this sense, the "fiscal cliff" metaphor is especially poor. The government doesn't need to apply the brakes with more force to avoid disaster. Rather the "cliff" is an artificial one that has sprung up because the two parties are able to agree on so little.
Hopefully, they will agree, as they did at the end of 2010, to embrace their disagreement for a bit longer. That seems a reasonably likely outcome of negotiations because the most likely alternative to a punt is a compromise (expiration of the Bush tax cuts for the top and the payroll tax cut, along with modest spending cuts) that could still push the economy into recession.
Remember when President Obama promised he'd cut the deficit in half in his first term? Well, the results are in, and red ink will once again top $1 trillion. Calling this an epic failure isn't enough.Here's another opinion piece dressed up as "reporting" looking at Obama's handling of debt (ominously titled "Obama Let America's Debt and Deficit Cancer Spread"), this one from the middle of October:
During his first 44 months in office, President Obama's policies added $122 billion a month to the U.S. taxpayer burden. At the same time, those policies added only $40 billion a month to the tax base.
This is Obamanomics at work — an extremely rapid rise in outstanding Treasury debt compared to nominal GDP. U.S. taxpayer liabilities increased by a factor of three times as fast as the tax base during his leadership as president.Finally, there is an article from five days before the deficit shrinking piece, which references AFL-CIO President Richard Trumka's statement that, "all the deficit chatter has distracted us from our real crisis — the immediate crisis of 23 million unemployed or underemployed workers," and then compares this to the dire (austerity induced) fiscal straights that Spain and Greece are weathering:
In short, Trumka is arguing that there's no such thing as too much government spending, that deficits don't matter and that entitlements cannot be cut. Such denialist thinking is beyond irresponsible in the face of a $16 trillion debt, highest on global record and a sign of an irrational agenda often followed by would-be tyrants...This is the kind of irresponsible thinking that has triggered riots in Greece and Spain — a belief that the money is there and only the meanness of austerity is keeping the common man from his share.Investor's Business Daily seems to have come quite a ways in the last five days on this topic. It couldn't have anything to do with the increasingly obvious fact that the President's re-election and the mechanics of the fiscal cliff give him the lion's share of leverage in the negotiations, which look increasingly likely to end with the GOP grudgingly allowing the upper income tax cuts to expire...could it?
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