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The Fiscal Cliff and Baby-Killing Doctors

by DEAN BAKER

Extreme opponents of abortion sometimes refer to obstetricians who perform abortions as “baby killing doctors.” The media do not adopt this language in their coverage of the debate over abortion, and instead use more neutral language.

Unfortunately the media do not feel the same need for objectivity elsewhere. Many of the country’s most important news outlets openly embrace the agenda of the rich and powerful, allowing this agenda to color its coverage of major economic issues.

This is perhaps nowhere better demonstrated than in its coverage of the current budget standoff between President Obama and Congress, which the media routinely describe as the “fiscal cliff.” This terminology seriously misrepresents the nature of the budget dispute as everyone in the debate acknowledges. There is no “cliff” currently facing the budget or the economy.

If there is no deal reached this year then on January 1, daily tax withholdings will rise by average of about $4 per person. Any money actually deducted from pay checks will be refunded if a deal is subsequently reached that returns tax rates to 2012 levels. Government spending probably won’t change at the start of the new year since President Obama has considerable discretion over the flow of spending. No one can think that this modest increase in tax withholdings would plunge the economy into a recession, but the Wall Street types seeking to dismantle Social Security and Medicare have used their enormous wealth and their allies in the media to generate precisely this fear across the country.

One way in which they have pushed this recession fear has been to misuse projections from the Congressional Budget Office (CBO). CBO’s projections show that if higher tax rates and lower spending are left in place for the whole year then it will substantially slow growth and push the economy into a recession.

However, these projections explicitly assume that we go a whole year without reaching a deal. They say nothing about what happens if we get a deal by the second or third week of January. Even a Washington Post editor should be sharp enough to understand this distinction, nonetheless many stories have appeared that imply the recession projections apply to missing the January 1 deadline.

The other deception that the Wall Street types have used to push their Social Security and Medicare cutting agenda is to claim that the markets are demanding that these programs be cut. This sort of assertion, which is treated as a fundamental truth by the Washington insider crowd, has the wonderful feature that it cannot possibly be contradicted by evidence.

Of course none of us knows exactly what will trouble the financial markets or how much it will matter to the economy if something does trouble the markets. (As a factual matter, even a sustained drop in the stock market has a limited effect on the economy and short-term fluctuations have almost no impact.) This means that when the Wall Street types or their designated spokespeople make authoritative sounding claims that the markets will be upset if we don’t cut Social Security or Medicare as part of a budget deal, there is no direct way to refute them. After all, it is possible that they will be right.

If economic reporters did their job they would be looking for evidence to support these assertions about financial markets. They could start by looking at the track records of those issuing the warnings. If they did examine the track records of people with organizations like the Campaign to Fix the Debt and other deficit hawks, they would tell their audiences that these “experts” have the distinction of being almost 100 percent wrong on just about all their economic predictions over the last five years.

This crew has been predicting that large budget deficits would cause interest rates to skyrocket ever since President Obama’s first stimulus almost four years ago. Many also predicted inflation would explode. Of course none of them warned of the housing bubble; they were running around the country yelling about the budget deficits even when the deficits were small enough that the debt to GDP ratio was actually declining.

In short, major national news outlets have adopted wholesale the agenda of a Wall Street elite that displays zero evidence of any understanding of what drives the economy. Their assertions that the markets will panic without a budget deal that cuts Social Security and Medicare has no apparent foundation in reality. It is just a threat that they have concocted to advance their agenda. Now that would make for a very good news story.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on The Guardian.

 

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

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