Cliff Confusions, by Paul Krugman, in NY Times: While I have access, let me point you to an excellent post by Suzy Khimm making a point I should have made: the only reason to worry about the fiscal cliff is if you’re a Keynesian, who thinks that bringing down the budget deficit when the economy is already depressed makes the depression deeper. And the same logic actually says that we should not just avoid spending cuts, we should raise spending right now.
What Khimm doesn’t mention is that a lot of the Very Serious People don’t seem to get that. As Jon Chait pointed out, finance bigwigs published an utterly ludicrous letter claiming that the risk from the fiscal cliff is that interest rates might spike — which is completely off base. The only way I can make sense of that letter is cognitive dissonance — they’re so wedded to the notion that the danger is that the invisible bond vigilantes will scare off the confidence fairy that they can’t admit, even to themselves, that what’s really worrying them right now is straight Keynesian concerns.
And the supposed deficit hawks, who should be celebrating the prospect of such a big move in their direction, aren’t. Why? As Khimm suggests, this isn’t the deficit reduction they wanted — it was supposed to involve hurting the working class, not raising tax rates at the top (which were supposed to be cut!).
Call it a teachable moment.