Bill Frenzel: Going Off the Fiscal Cliff Is Good Policy—If You Like Unemployment
Former Congressman and CRFB Board Member Bill Frenzel has some advice for the so-called "fiscal cliff divers": don't even think about it! Going off the fiscal cliff would be terrible policy, with the sudden and blunt spending cuts and tax increases likely sending the U.S. into another recession.
Meanwhile, if we could decide on a smart comprehensive plan to reduce the debt in the medium and long term, we could repeal the policies of the cliff while still putting our debt on a sustainable path. Frenzel writes:
Don't even think about it! Falling off the fiscal cliff would be an economic disaster for the United States. The fall would add over $300 billion in taxes in this fiscal year, along with another $200+ billion in spending cuts and other changes, or a net change in the deficit of over half a trillion dollars in the current fiscal year (9 months of it are left).
The Congressional Budget Office says that our GDP would be reduced by 3.4 percent in fiscal year 2013, and 4.5 percent in calendar year 2013. We are suffering now with a "slow" recovery of 2 percent growth or slightly less, with unemployment still about 7.9 percent. The cliff recession would wreck our economy and make our current national pain seem pleasant.
Worse, the suffering would not gain us much. Taxes would rise on all Americans, including those least able to pay, but little would have been done to reduce the entitlements which are the long-term drivers of our deficits and debt....
There are some members of Congress who have expressed support for the "let 'er rip" concept: That is, forget the negotiations and just jump of the cliff. They see it as a good way to bring more tax revenue, and expect good policy to arise from the ashes of the fall.
Falling—or jumping—off the cliff is good policy, but only if you like recessions, enjoy unemployment, and don't mind living in the ashes. The economists who tell us the fall means a recession are not fooling. The cliff is real, and the fall will be painful. Responsible politicians will avoid it at all costs.
The full article can be found here.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.