While it’s lost in much of the conversation, the fact of the matter is that the “fiscal cliff” was an engineered crisis, designed by congressional deficit scolds as a way to force lawmakers into crafting a debt-reduction deal. As it turns out — and as you could have predicted last year — there’s little that can be done to bridge the large gap that separates Democrats and Republicans on the issue. And while the two sides may find a way to avoid the cliff, it also clear that, at this point, odds are low for a “grand bargain.” Here’s the Wall Street Journal:
Even if lawmakers and the White House agree on a deal to avert the cliff, it seems increasingly possible that deal would delay into next year resolution of most of the thorny budget issues.… The least likely track would involve a revival of the stalled talks between Messrs. Obama and Boehner for a ‘grand bargain’ to confront deficit reduction.
For those who see debt reduction as the nation’s most important task, this is a disaster. But if you’re more worried about economic growth and high unemployment, this could prove beneficial. Remember, earnest deficit hawks aside, there’s no one clamoring for a debt-reduction deal — market pressure is nonexistent. What markets want, and what the United States needs, is a healthy job market.
In other words, there’s no real harm in extending the status quo, and kicking the can for two more years. Yes, this means the Bush tax cuts stay intact, but it would also maintain key stimulus measures such as unemployment insurance and the payroll tax cuts. You can revisit deficit reduction — and deal with our long-term debt problems — when the economy is healthier and we’re closer to ending the crisis of mass unemployment.
With that said, I can see why the White House — and Democrats — would want a deal sooner than later. Now is when they have maximum leverage, and the ability to set the policy baseline for the next several years. They can implement needed tax increases, preserve important pieces of spending and shore up the four years of policy-making. Kicking the can might be better for the economy, but it could harm their political interests; Republicans might want for influence now, but in 2014 — an election year — they’ll almost certainly have it.