Lawmakers Might Gamble Away the Economy
Posted at 12:45 p.m. on Dec. 5, 2012
Alan Blinder is increasingly concerned about suggestions from Democrats and Republicans that a short dive over the “fiscal cliff” will help precipitate a deal.
“Some so-called political experts (a well-known oxymoron) assure us that the budget debate won’t last more than a few days, or weeks at most, after we fall off the cliff… But what if they’re wrong?”
“One interesting historical parallel makes me cringe. In mid-March 1980, President Jimmy Carter, desperate to stop inflation, invoked long-standing (but never-used) powers to institute credit controls… Soon the growth of money and credit stopped dead in their tracks… it appears that policy makers grossly underestimated the psychological impact, particularly on American consumers.”
“Maybe nothing like that will happen if we fall off the fiscal cliff at the end of this month… Maybe seeing their government so utterly dysfunctional won’t shake up American consumers enough to curb their spending. Maybe. But do you want to run the experiment?”