It's so cute to see all the serious people who are so worried about economic crises that do not exist. They are constantly telling us how the "job creators" (a.k.a. rich people) who run businesses are just so nervous and uncertain they don't know what to do. The current concern is that taxes could rise at the end of the year and government spending will fall.
Of course this would be bad news, but would it be a crisis? As many people have pointed out, this is called "deficit reduction," which is exactly what most of the people now complaining about an imminent crisis have been advocating. The tax increases and spending cuts would weaken the economy and, if left in place over the course of the year, would sharply slow growth and likely push the economy into a recession.
But none of this happens in January. In fact, almost nothing happens in January except the Bush tax cuts expire, substantially improving President Obama's bargaining position. This is bad news for Republicans, but so what?
Hence we have David Brooks telling us this morning:
"The first thing to say about this strategy [letting the tax cuts expire] is that it is irresponsible. The recovery is fragile. Europe may crater. China is ill. Business is pulling back at the mere anticipation of a fiscal cliff. It’s reckless to think you can manufacture an economic crisis for political leverage and then control the cascading results."
Is there any evidence for this assertion whatsoever? "Europe may crater." What on earth does Brooks mean by this? People will not want to hold euros because the U.S. economy might be slowing slightly (we're talking January, not the whole year)?
Look, this is utter nonsense. Brooks is pushing hard to protect the bargaining position of his Republican friends. He is obviously willing to say anything to advance the cause including inventing crises that do not exist.
It makes for entertaining reading. After all, here is a guy who was completely oblivious to the largest economic crisis in 80 years until it sank the economy who is now seeing crises in every closet. It is about as serious as those predictions of a Romney landslide that we heard last week.
I almost forgot to ridicule Brooks for one of the main points in his piece. He tells readers:
"Before he gets lost in the mire of negotiations, the president could step back and practically describe the task ahead. Between 1947 and 2007, the U.S. economy grew an average of 3.3 percent a year. But over the next few decades, according to forecasts from the Congressional Budget Office, it’s projected to grow only at 2.3 percent per year. The task ahead is to make the sort of structural changes that will get America back on its old growth trajectory."
There are three reasons why this paragraph deserves buckets full of ridicule. First, the main reason for the projected slowdown in growth is slower labor force growth. We will have slower growth of the population and we will have more people enjoying leisure time. Perhaps Brooks has a problem with that, but that is Brooks' problem, it is not "the task ahead." [I hate to break the bad news to Mr. Brooks, but having a column in the NYT does not give you the right to dictate the agenda for the president and the country over the next three decades. Apparently your editor misled you.]
The second reason why this statement is ridiculous is that no one has a clue as to how to raise the annual rate of growth by a percentage point. If we do good stuff on infrastructure and education we may be able to increase long-term growth by 0.1-0.2 percentage points. That would be a real accomplishment. I don't know of any economist who could say with a straight face that they have a plan to increase the long-term growth rate by a full percentage point.. If Brooks has one in mind, he could do us all an enormous service by calling the world's attention to this person.
Finally, since most people have seen little or none of the gains of economic growth over the last three decades, they would find a world with more equal distribution to be a big winner even if it implied the same or even a slower rate of growth. In this sense, the bar for most of the population is actually quite low. If we had 2.0 percent annual growth that was equally shared, then most people would be doing hugely better over the next three decades than they did over the last three decades.