Other than the fact that we’re now two weeks closer to its tax increases and spending cuts going into effect, not much has really changed about the fiscal cliff since my last column was published two weeks ago.
Yes, we’ve heard reports about staff discussions. Yes, four Republican senators — Saxby Chambliss of Georgia, John McCain of Arizona, Lindsey Graham of South Carolina and Bob Corker of Tennessee — said publicly that they’re willing to break the no-tax-increase pledge, although doing it by raising rates — the administration’s preference — still doesn’t seem to be acceptable. Yes, some CEOs of companies whose customers will have less to spend if the tax increases go into effect said the fiscal cliff should be prevented. And, yes, a number of Republican and Democratic governors whose states will lose some of the federal financial support they receive have said it would be a terrible thing.
All of that is largely irrelevant. Without the White House and House Republicans seeing eye to eye — and they still definitely don’t — we’re no closer to a deal to stop the fiscal cliff than we were before the start of the Thanksgiving recess.
But that doesn’t mean the budget debate hasn’t been substantially changed by what’s already happened. To the contrary, some of the most commonly held budget beliefs and fiscal fish tales have now been shown to be deceptive, disingenuous, misleading and just plain wrong.
The most obvious of all the now clearly disproven common budget wisdom is that the federal deficit is always bad and therefore must always be reduced. The whole discussion about the fiscal cliff — indeed the creation of the phrase itself — is all based on what should now be considered absolutely incontrovertible: There are times — like now — when a federal budget deficit is a good thing and efforts to reduce it make no sense whatsoever.
This comes as an absolute shock to those who keep being told and have a religious-like belief that a deficit is a sign of corruption inside the Washington Beltway and a reason the other political party can’t be trusted with the economy. The fiscal cliff debate has demonstrated that the presidents, representatives, senators, and Federal Reserve Board chairmen who fight for a deficit — or a higher deficit — when the economic situation calls for it are far more valuable than those who demand it always be reduced.
The second myth the fiscal cliff has exploded is that Wall Street understands what’s happening with the federal budget. That’s the only conclusion that can be drawn from the extraordinarily positive overreaction that took place on Nov. 16, when because congressional leaders emerged from a White House meeting on the fiscal cliff and used the word “constructive” to describe the session, the Dow Jones industrial average rallied by more than 100 points and went from negative to positive territory.
If Wall Street was so taken in by a statement that had no real meaning and very likely was choreographed to hide the fact that nothing was agreed on at the largely ceremonial meeting, it doesn’t deserve its long-held reputation for being so all-knowing when it comes to fiscal policy politics.