Should Obama & America Leap Off the Fiscal Cliff?

By Shlomo  Maital   


 

 

  Today’s Global New York Times has a column by economist Paul Krugman, advising newly-re-elected President Obama to … jump off the fiscal cliff. 

  What IS the fiscal cliff and why should Obama leap off it?

    “The United States fiscal cliff is the effect of a number of laws which, if unchanged by Dec. 31, will result in tax increases, spending cuts, and a corresponding reduction in the budget deficit beginning in 2013.  The Congressional Budget Office, an objective source,  estimated in May   that allowing current law to take effect would reduce the deficit by a net $560 billion in 2013, roughly half the $1.2 trillion 2011 deficit. But real GDP growth in 2013 would be reduced to 0.5% versus 1.1%, with a high probability of recession during the first half of the year (a 1.3% GDP contraction).  The reason for the recession is simple:  The huge falloff in public spending (and demand), with no compensating increase in demand or spending from any other source. ” 

    Krugman thinks Obama was wrong to give in to the Republicans in 2011, when the Budget Control Act was passed, raising America’s debt ceiling but chaining Obama to draconian spending cuts in 2013 if the deficit was not cut.  This time, he advises Obama to call their bluff.  The Republicans’ business supporters will blink first, he claims.  They know that if Obama really does leap off the fiscal cliff, which will happen if no new legislation and no new budget is passed,  business will be the first to suffer (along with the rest of Americans and the whole world – when the world’s biggest economy dives, so will the world’s economy). 

  But if you listen to House Speaker John Boehner, he is more determined than ever to sock it to Obama and not give in. 

   Can the world tolerate this kind of political brinkmanship?  Is it responsible for America to bring its own economy to the very edge of the cliff, together with that of the rest of the world?  Is this behavior acceptable for the nation whose currency is still, and for the foreseeable future, the world’s money?

   Stay tuned.  Whatever happens, it will be messy and very risky and unpleasant.  

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