The Worst Argument Against Going Over the Fiscal Cliff

A blog about business and economics.
Nov. 26 2012 12:28 PM

The Worst Argument Against Going Over the Fiscal Cliff

152411271
From left, Sens. Charles Schumer, Harry Reid, and Patty Murray at a news conference on Capitol Hill in September

Photo by Mark Wilson/Getty Images.

Politics aside, there's no serious argument to be made against the idea of sending all the members of Congress home and then negotiating on budget matters under the new baseline. From the new baseline, all Democrats and Republicans disagree about is how much to cut taxes by and how much to increase spending. Those are issues where compromise can be found. It'll take some negotiating, but it can get done fairly easily.

Patty Murray, successful Democratic Senatorial Campaign Committee chair and supercommittee ringleader and now incoming top Senate Democrat on the Budget Committee seems to be the highest-profile politician out there making the case. But you can tell how ironclad the argument is by just reading the absurd counterarguments:

Advertisement
Some Democrats off Capitol Hill are also skeptically eyeing the strategy.
“Markets are going to go into an absolute tailspin, and I don’t think we want to risk that, especially with leadership right now trying to find a deal,” said Gabriel Horwitz, director of the economic program for Third Way, a centrist think tank. “I think the market reaction is going to happen immediately.”

So think about how this goes. On Monday, a new baseline goes into effect. In response to the higher taxes and spending cuts, markets crash. Then on Tuesday, legislators agree to cut taxes, markets rise. On Wednesday, legislators agree to increase spending, markets rise. As a result, you'll have had a net transfer of wealth from panicky people to sensible people, and by the end of the end of the week "market reaction" will be on to the next thing. By Friday, the president can announce the formation of a blue-ribbon panel to formulate a proposal for revenue-neutral tax reform based on the new higher-revenue baseline.

Financial markets are important both substantively and as a useful source of information. But it would be absurd for policymakers to try to target short-term fluctuations in financial markets. They should try to enact decent economic policy. If the best chance of doing that is to start from the new baseline—and it is—then they should start from the new baseline. Sparing CNBC obsessives 48 hours of antsiness isn't a good reason to do anything.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.