no austrians near fiscal cliffs

The commonplace saying “there are no atheists in foxholes” — while probably technically false — seems apt to describe the so-called “fiscal cliff” situation the United States government finds itself in. Deficit hawks and Austrian economics purists ought to be happy, as the automatic cuts produce the first significant deficit reduction in 12 years and reduce government involvement in the economy more substantially than essentially anything since Bretton Woods.

But, with important exceptions, most commentators agree that the fiscal cliff is likely to lead to major economic problems because of the withdrawal of substantial government money from key economic functions and of tax rates returned to those that existed during the last economic boom. Let’s recognize this for what it is: an admission that government’s involvement in the economy actually does create jobs, Mitt Romney notwithstanding.

Author: andrewperrin

University of North Carolina, Chapel Hill

6 thoughts on “no austrians near fiscal cliffs”

  1. I don’t know about Austrian economists (Lucas for instance), but right-wing politicians who argue that government spending doesn’t help the economy add two exceptions: 1. when it’s military spending, and 2. when it’s in their district. (With a strong interaction effect.)


  2. We Austrian school economists appreciate the shout out, but the post seems to use “Austrian” as shorthand for supply-side, Republican, Chicago school, and who knows what else. (All bad, presumably!) Most Austrians are not too worried about the cliff, but not excited about it either, seeing spending cuts as good for economic growth, but tax increases as harmful (deficit reduction per se isn’t the main issue). E.g.:


  3. What Peter said. Pete Boettke and Tyler Cowen (if you want to count him as Austrian) have been pretty indifferent to whether it happens. They’re actually most excited about the spending cuts for public choice reasons. Which Austrians are you talking about?


  4. In other words, the bondholders are worried about the ability of the US Treasury to “pay back” debts and ensure the ability to fund another bailout of the financial sector. What will be interesting (as alluded to by Jay) is (and this may be pushed even further into the future) is a potential showdown between the military industrial complex and the Wall Street ruling class. But for now, it is best to abuse Medicare and Medicaid recipients (potentially making life tenuous for Big Pharma, some doctors, and hospital corporations).


  5. Peter Klein wrote, “… seeing spending cuts as good for economic growth”

    I’d love to know the empirical basis of “seeing spending cuts as good for economic growth,” especially given the current circumstances in which monetary policy lacks any real punch.


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