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Cliff dwelling: The economy and the sequester


It seems that the fear of going over the fiscal cliff caused the economy to shrink by one tenth of one percent in the last quarter of last year. What would happen, then, if we actually went over it?

As The Wall Street Journal reported on Wednesday, the decline in Gross Domestic Product "reflects worries about the so-called fiscal cliff. The economy reversed from a 3.1% pace of growth in the third quarter largely because federal government spending fell by 15% and private business, likely fearing slack in demand, let inventories dwindle."

If a reduction in federal spending helped cause a contraction, why don't we just spend more? Because we don't have the money, and because some spending is beneficial, some harmful. Spending on necessary constitutional functions that enable the private economy to operate smoothly (such as national defense) is a positive. Transferring money from productive uses to unproductive ones, or from politically unfavored groups to politically favored ones, is a net negative,

So are tax hikes. Yet the Senate and the White House insist that unless the Republicans agree to even more tax increases than the ones we got this month, they will let the sequester happen. What completely irresponsible brinksmanship.

Once again, Obama and Senate Democrats are holding the economy at ransom, and the ransom they demand is a huge tax increase. It ought to be obvious by now that their primary concern is to raise government revenue, not create jobs. We are getting the economy that results from such priorities.

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