The fiscal fallacy
With the end of 2012 fast approaching (or the end of the world, if you’re into that sort of thing), politicians have been engaged in fierce discussion regarding what Federal Reserve Chairman Ben Bernanke has deemed the “fiscal cliff.”
“Fiscal cliff” is a shorthand phrase used to describe the situation that the United States government will face at the end of 2012 when the terms of the Budget Control Act of 2011 are set to take effect. Said terms include the end of the Bush-era tax cuts, which will result in increased taxes for everyone, and automatic ‘across the board’ spending cuts in government programs (including defense and Medicare) as part of the sequester.
This so-called fiscal cliff has been testing politicians’ commitment to bipartisanship as they bicker over how they will handle the imminent “crisis,” and, more importantly, how they will handle the outcomes. Ultimately, the big issue for markets and the government is reducing the debt to Gross Domestic Product (GDP) ratio in the long-term, while avoiding immediate austerity.
President Barack Obama and fellow House Democrats are hoping to reach an agreement before the end of the year; they would like to see tax hikes on the wealthy, something GOP members are staunchly against. Both parties, however, agree on avoiding tax increases for the middle class.
The fiscal cliff is poignant in that it presents a great opportunity for our government to show that Democrats and Republicans can function together effectively and establish a logical resolution. They must do this without scaring the country into believing our economy is falling, or will fall, into an unavoidable and irreversible cataclysm if a decision is not reached by the end of the year, because the country is not, and it won’t.
The fiscal cliff is not as dangerous or as urgent as it seems. Even the term itself is problematic. MSNBC contributor Chris Hayes has coined a better phrase, the “fiscal curb,” which denotes a much less daunting and much more accurate description of the problem. But the former implies that our economy is approaching a metaphorical overhang and if congress doesn’t act fast, we all spiral head first into an abysmal black hole of no return. This just isn’t the case. The only thing inherently dangerous about the fiscal cliff is the discussion surrounding it perpetuates false notions about what is most important in our societal and economic hierarchy.
Our friends in the media and federal government have done well in bolstering the idea that this fiscal cliff is critical when in fact it serves as a distraction to more imperative decrees. Ignored is the slow economic recovery that reinforces already drastically high unemployment levels, and maintained is the belief that interest rates will spike if we head over this cliff, even though influxes of market investors are forcing interest rates to near historic lows.
This fabricated apprehension surrounding the fiscal cliff has created sustained belief that our economy might end up like that of Greece; where there will be a rise in Treasury yields, a surge in interest rates and a quick dive back into recession. This concern is currently unfounded. Our government has the ability to print more money, a prospect that won’t lead to inflation, in the short term because of the United States’ depressed economy.
Unfortunately this seems to be a difficult concept to grasp for media outlets. Headlines in the news are ridden with anxiety-fueled idioms and words in relation to the cliff: “looming,” and “fiscal disaster” are among some of the most common.
CNBC has even gone as far as creating their own movement, “Rise Above,” that advocates the belief that the threat of a recession should have provoked Congress into making a decision before the end of the year deadline, but instead has put us “on the brink” of one.
Movements like this can be dangerous because the promotion of such an idea that is so radically fear-mongering can distort the true nature of the problem, not to mention divert attention away from affairs that actually require concern of this magnitude (like those pesky unemployment levels mentioned earlier).
The fact is that if Congress can resolve this issue responsibly, there will be no recession. Even if their colloquies extend past the deadline, the tax increases and spending cuts will not immediately manifest themselves and destroy the economy as so many would like us to believe. The fiscal curb is important, but it’s crucial to note that we are not approaching any sort of catastrophic danger when December comes to a close, regardless of what media outlets, politicians, or the Mayan calendar tell us.
Jillian Correira is a Collegian contributor. She can be reached at firstname.lastname@example.org.