If there's one thing both parties agree on, it's this: Congress and the president need to act right away to stop America from plunging off the fiscal cliff. Any deal to that effect, Democrats and some prominent Republicans agree, should rein in long-term deficit spending through a combination of budget cuts and revenue increases.
But according to Nobel Prize-winning economist Paul Krugman, the Washington consensus is exactly wrong. Cutting the deficit now, he says, could actually hurt our economy. Furthermore, "fiscal cliff" is a misnomer; what really threatens the American economy's recovery is the austerity bomb (an expression he attributes to TPM reporter Brian Beutler).
"The cliff stuff makes people imagine that it’s a problem of excessive deficits when it’s actually about the risk that the deficit will be too small," writes Krugman in a post on his New York Times blog. By framing the problem as a "fiscal cliff," he writes, Washington insiders are performing a "bait and switch" which allows them to argue the problem can be solved through deficit reduction measures like cutting entitlements.
In reality, that "solution" would only make matters worse. It would amount to swapping out one form of austerity—the kind to be triggered by what people are calling the fiscal cliff—for another, planned version of the same. Krugman--citing John Maynard Keynes--says that the right time for austerity measures is during a boom, not a bust.
Despite this, both Democrats and Republicans have accepted deficit reduction as a major priority for the beginning of Obama's second term. When asked shortly before the election what was on the agenda for his second term, the president himself replied, "There’s no doubt that our first order of business is going to be to get our deficits and debt under control."
The labor movement and affiliated organizations to the president's left flank are organizing to ensure that a final fiscal cliff deal includes tax hikes on the rich and no major entitlement cuts. Leaders from the country's top labor unions met with President Obama on Tuesday, and that night SEIU President Mary Kay Henry praised him as "incredibly serious and focused."
But labor historian Nelson Lichtenstein told msnbc he expects the president to make organized labor swallow a compromise which includes some austerity measures. "I suspect that they're going to have to eat some stuff, you know, like limits on Social Security, or some tinkering around entitlements programs," he said.
The question, then, is not whether the austerity bomb will detonate: it's what the size of the blast radius will be.