Published on December 24th, 2012 | by Scott Cooney0
The Fiscal Spliff
Reading the headlines, you might guess that the Fiscal Cliff is, as the Mayans predicted, legitimately making 2012 the end of the world. The truth is likely much less dire.
In an op-ed in the New York Times this week, Nassim Taleb, finance professor and author of Antifragile: Things that Gain from Disorder, argues that the cliff is more of a red herring than an actual cliff.
“Likewise,” he argues, “any last minute deal to avoid the spending cuts and tax increases scheduled to go into effect January 1st isn’t likely to save us from economic turmoil. It would merely let us continue the policy mistakes we’ve been making for years, allowing us only to temporarily stabilize the economy rather than address its deep, systemic failures.”
The failures he’s referring to tend to be caused by a centralized system, where too much power is given to Washington, which then inevitably gets overrun with lobbyists and powerful corporate interests.
True, the fiscal cliff might be the (temporary) end of things we like, like wind energy tax credits that help fuel thousands of green jobs and permanent energy independence, but they would also have a lot of positive outcomes, like allowing the Bush tax cuts to expire–as they were originally planned to do.
The problem stems from greed. People like tax cuts. They also like increased spending. Both things put more money in their pocket and make the economy grow. However, they are mutually exclusive to some degree…we can’t keep cutting government revenue while also increasing spending.
As Taleb points out, the centralized decision making led to major economic failures. Among them, he describes the Federal Reserve’s role in the 2008 economic meltdown, but also the Iraq War, which ended up costing 40-100 times what the Bush-Cheney team told us it would when they were beating the war drums in 2003.
Just as we didn’t forecast these two mistakes and their impact, we’ll miss the next ones unless we confront our error-prone system. Fortunately, the solution can be bipartisan, pleasing both those who decry a large federal government and those who distrust the market.
Taleb argues that in a decentralized system, economic failures tend to be smaller and manageable. When the banking crisis hit in 2008, for instance, North Dakota fared better than much of the rest of the nation because of their tradition for community banks. And how much influence could military contractors have if they had to convince each county or even each state to approve a war resolution based on very sketchy intelligence offered by the Bush-Cheney team that led us to war in Iraq?
All I can say is, don’t sweat the fiscal cliff. Strap on your squirrel suit and adapt!