Punting the Pundits

Missing the January deadline simply means those who want to preserve Bush tax cuts for the super-rich lose political leverage

Washington elites have spent much of the last three decades getting hysterical about budget deficits, but they are outdoing themselves in the current budget stand-off which they labeled as the “fiscal cliff”. Their story is that scheduled increases in taxes at the end of 2012, coupled with mandated cuts in spending, will send the economy tumbling into recession if Congress doesn’t take action before the end of the year.

The horror story associated with this 1 January deadline depends on fundamentally misrepresenting reality. There are projections from the Congressional Budget Office and other independent forecasters that show the combination of tax increases and spending cuts would chop more than 3.5 percentage points off GDP growth. This hit would mean a contracting economy and push the unemployment rate back over 10%.

However, the part that is generally downplayed in this genuine horror story, or left out altogether, is that the projection of a recession is not based on missing the 1 January deadline. The projection assumes that the higher tax rates and lower spending levels are left in place throughout the year – a scenario that almost no one considers plausible.

Robert Reich: Why We Should Stop Obsessing About the Federal Budget Deficit

I wish President Obama and the Democrats would explain to the nation that the federal budget deficit isn’t the nation’s major economic problem and deficit reduction shouldn’t be our major goal. Our problem is lack of good jobs and sufficient growth, and our goal must be to revive both.

Deficit reduction leads us in the opposite direction — away from jobs and growth. The reason the “fiscal cliff” is dangerous (and, yes, I know — it’s not really a “cliff” but more like a hill) is because it’s too much deficit reduction, too quickly. It would suck too much demand out of the economy.

Robert Kuttner: Ben Bernanke for Treasury Secretary

Why Bernanke to succeed Tim Geithner? Several reasons.

First, he is probably the most influential and credible person in official Washington who is not part of the echo chamber on deficit reduction. By his speeches and actions, Bernanke has made it clear that he considers the most serious threat to the economy to be a continued deflationary drag, and not worries about the public debt.

Bernanke’s Fed has poured money into the economy by buying bonds by the trillions of dollars. He’s driven interest rates about as low as they can go using this method, and he has repeatedly said that it’s not enough. He’s open to even more drastic measures, such as selective purchases of certain kinds of bonds to get bank lending and mortgage refinancing moving at the scale necessary.

In his “fiscal cliff” speech of last August 31, Bernanke pointedly refused to join the austerity posse. On the contrary, he all but asked Congress to use fiscal policy to stimulate the economy in the short run.

Bob Herbert: Why Walmart and Big Retailers Should Pay Their Workers More

Henry Ford famously decided in 1914 to pay many of his workers the then incredible sum of five dollars a day, which was substantially higher than the prevailing wage at the time.

While that wasn’t done specifically to enable Ford’s workers to buy his cars (his primary objective was to reduce employee turnover), it did at times have that effect. More important, Ford’s innovation, which shocked the industrialists of that era, helped kickstart America’s high-wage, high-consumption economy and the creation of its vast middle class.

Nearly a century later, in the midst of a weak economy and rising poverty, my colleagues at Demos, a New York-based think tank, have made a compelling case that Ford’s revolutionary approach to industrial wages should now be applied to America’s retail sector.