Signing Off for Christmas (on a Note of Optimism)

More

Before I take a break, my new column for the Financial Times aims for a note of cautious economic optimism. To begin with, as you know, I see the tax deal as good news...

The revenue cost of the tax deal is more than $800bn over the next two years, prompting commentators to call it an even bigger stimulus than the fiscal plan adopted in 2009. This is nonsense. Almost all of the forgone revenue is due to the extension of tax rates and other measures already in place. Measured against a current-policy baseline, which is the only one that counts, the net new stimulus of the largest components is zero. The deal's main innovation - and it is a good one - is the one-year payroll-tax cut, which costs something over $100bn in 2011.

The extra stimulus, correctly measured, is modest. But the deal averted the possibility - and at one point, it seemed, the likelihood - that the US Congress would become deadlocked over tax policy, and let all the tax cuts passed by the Bush administration in 2001 and 2003 expire. Democrats and Republicans, ever keen to put the country first, were happy to consider this option, if it meant gaining tactical advantage.

This outrageous game of chicken, pursued to the limit, would have caused an abrupt, severe and unforeseen fiscal tightening. Larry Summers, the departing head of President Barack Obama's National Economic Council, was mocked for saying that failure to reach agreement could create a second recession. He was right.

...but there's more, as the article says.

I'll be on semi-vacation for a week or so (Arizona and West Virginia, since you ask). See you on the 29th, or thereabouts. Happy Christmas to one and all.

Jump to comments
Presented by
Get Today's Top Stories in Your Inbox (preview)

The Death of Film: After Hollywood Goes Digital, What Happens to Movies?

You'll never hear the whirring sound of a projector again.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Business

Just In