How Pleasant It Is to Be “Responsible” By Being “Irresponsible.”

Before the election Senator Durbin said that everyone here (meaning Capitol Hill) knows that the United States cannot be allowed to go over the fiscal cliff. Translated, this means that it would be disastrous for the country to cut back its huge deficit spending anytime soon.

This is, to be sure, standard Keynesian dogma, and Mitt Romney and other Republicans are Keynesians too. But as we have discussed before, there is not a shred of logic or documented evidence that economic stimulus through deficit spending actually helps an economy. If any logical argument can be made for it, it would be when the national debt is low and the budget in balance, not when the national debt is enormous and unfunded liabilities beyond counting.

This isn’t just true for government. Private consumer and even business borrowing makes less and less sense as the debt load mounts. For the US as a whole, we seem to have entered a period in which for every dollar of new debt we take on, we will not only fail to get a dollar or more of economic growth. We will get negative economic growth.

So what is the best solution for the so-called fiscal cliff? It is to do the opposite of what everyone is saying—sail right over it. Reducing the deficit now, by one means or another, is the best thing we can do. It will lead to more jobs, not less. It would probably even lead to more jobs now, not just in the long term, by reassuring investors that the country is not headed for bankruptcy.

In the article below, the hysteria about the so-called fiscal cliff gets even more hysterical. We hear that the fiscal cliff even threatens our national security! This is not just because it could lead to a reduction in the defense budget.

Because the cliff supposedly threatens our economy, we could lose our economy and our military in one stroke. Horrors!  Robert Kagan even tells us that it is an “illusion that national security cuts actually save money.” So by extension I guess we could save even more money by doubling the defense budget?

In fairness to Kagan, he doesn’t seem to be talking about using the military budget to “stimulate” the economy. He seems to be arguing more along the lines of saying that the British didn’t save money by cutting defense in the 1930’s, given what the 1940’s brought. But this is a misleading argument. The British cut defense radically after WWI while we have a gargantuan military budget with troops all over the world. And of course President Obama has already said he won’t cut forces (unemployment worries again), so that any cuts will have to come elsewhere.

Whenever “everyone” on Capitol Hill knows something, you can usually be sure it isn’t right. And how convenient for Congress that it can be “responsible” by continuing to be “irresponsible” on spending, and that the Federal Reserve will also make sure the costs of borrowing are kept low and that there will be plenty of newly printed  money to borrow. Why worry when the government can just continue borrowing from itself, using the Fed’s new money, as it has for several years now?

Click here for Kagan’s op-ed.