Will the US Fall Over the Cliff?

Make some computer projections on the state of the fisc based on fickle assumptions and thereby devise a looming crisis. As the voices of doom get louder and fill the air, you have created fear, which then leads to panic. The alarm bells then ring and force a stampede to escape from the impending danger. Welcome to the new world of “policymaking by hostage-taking” being pioneered in Washington, as the post-Keynesian economist James Kenneth Galbraith puts it.

Some tax cuts in the United States (US) are about to expire and some spending cuts are going to become effective with the ringing in of the new year, and the doomsayers have spread the word that if President Barack Obama and Congress refuse to act, then, with tax increases the size of which the US has not seen in the last 60 years, “America will fall, over the (fiscal) cliff”! There’s supposed to be an imminent crisis of government debt and deficits, and sacrifices are deemed necessary. Social Security, Medicare and Medicaid are in crisis, it is claimed, and therefore need to be urgently “reformed” (read slashed). Indeed, the forced cuts in military expenditure will supposedly endanger national security. The tax increases forced upon the wealthy will be a disaster for the economy for they will then not spend and invest what they might otherwise have done. And not merely the wealthy. The additional taxes imposed upon the middle class and the ending of the payroll tax holiday would have a very negative effect on consumer spending; indeed, they would spell the end of the “American Dream”. That opportunity which the US alone provides for prosperity and success – upward mobility from sheer hard work – would be scuttled. And, a whole lot of cuts in discretionary federal government spending would indeed be damaging to economic growth.