Many of us have argued that “fiscal cliff” is a wildly overwrought metaphor to describe the contractionary effects of fiscal tightening that will be phased in gradually. Bobby Jindal, in an op-ed today, seems to think the metaphor is not overwrought enough (“Today it’s the fiscal cliff, but that surely will not be the end of it; next year it will be the fiscal mountain, after that the fiscal black hole, and after that fiscal Armageddon”). But it also appears that Jindal lacks any understanding of what the fiscal cliff is or why economists think it’s bad.
In his op-ed, Jindal proposes that, as part of the budget negotiations, Republicans press for a balanced budget amendment to the Constitution. The reason the “fiscal cliff” is scary is that it theoretically entails reducing the budget deficit next year by half a trillion dollars — a contractionary effect strong enough that, if left in place (which it won’t be), would send the economy back into a recession.
But of course if we had a balanced budget amendment in effect, we wouldn’t be implementing half a trillion in immediate deficit reduction. We’d be implementing a trillion in deficit reduction. And such fiscal cliffs would become a regular feature of American budget policy. Any time the economy heads into a recession, the projected deficit rises as revenue shrinks and spending automatically rises. The 2008 recession caused the deficit to automatically rise, even without a stimulus, by some three quarters of a trillion dollars. A balanced budget amendment would require us to impose massive contractionary policy that would dramatically worsen any downturn.
The only way Jindal’s argument makes any sense at all is if you read it to mean that, as many people seem to think, the “fiscal cliff” means “high deficits” rather than “deficits shrinking too fast.” That’s the smart interpretation of his argument. The non-smart read of his argument is too incoherent to express in words. This from one of the GOP’s most touted brains!