“The Austerity Crisis”

Nov 29 2012 @ 1:03pm

Cliff

That's Ezra Klein's preferred term for the tax increases and spending cuts scheduled to go into effect at the beginning of the year. He believes that calling it a "fiscal cliff" makes it difficult to devise practical fixes:

A sensible approach to the austerity crisis would identify mismatched policies — unemployment insurance or disarming the sequestration cuts — that deliver maximum stimulus at minimal cost and then extend, or perhaps even expand, them. With the austerity crisis resolved, and the economy bolstered, we could move onto crafting a long-term budget plan that includes tax and entitlement reform. There’s no real reason that preventing an austerity crisis should be linked to reforming the tax code. There’s no reason at all that raising the debt ceiling should even be a question.

He also wants to continue the payroll-tax cut, which would cost $115 billion and create 1 million jobs in 2013. However, that sort of cost-benefit analysis isn't happening, notes Klein:

Instead, many of the least stimulative, most costly, policies are widely considered untouchable: the Bush tax cuts for income less than $250,000, for instance. And many of the most stimulative, least costly, policies appear likely to lapse at the end of this year. … This kind of confusion is what happens when you miscast a crisis of austerity as a crisis of deficits. It’s also a measure of how poorly Washington works. Legislators from both parties have concluded that crises are the only impetus to get anything — and thus the opportunity to get everything — done.

There is a danger in this kind of everything-now approach, as there is in any deal reached by a looming deadline. At the same time, president Obama has maximal leverage now – he's been easily re-elected with a Democratic Senate and a popular vote victory in the House, and set up the GOP for drastic defense cuts and blame for raising taxes on the middle class if they cannot get to a deal. So while Ezra's right, I think, in worrying that stimulus is still the short-term imperative, I think he may be missing the historic potential of this pivot. It's not as if Obama just got elected. The long game requires an eventual deal. It strikes me that the time is now.

(Photo: Boys jump from cliffs into the ocean on December 28, 2011 in Blairgowie, Australia. By Bruce Magliton/Newspix/Getty Images.)