On July 9, 2012, Ezra Klein writes on his Wonkblog on The Washington Post:
The Obama administration has been facing a difficult choice: Does it anger its base and muddle its message by working with Republicans to put off the fiscal cliff — and extend all the Bush tax cuts — until 2013? Or does it stand and fight on fiscal policy, even if that means increasing the chance that markets begin to panic in the most crucial months for the president’s reelection?
With today’s announcement, the administration has made its preference clear: Stand and fight, and hope the economy — and President Obama’s reelection hopes — survive the fallout.
It is conventional wisdom by now that what matters most for Obama’s reelection chances is the pace of the recovery between now and November. And, of the known risks to the economy between now and then, the fiscal cliff looms largest.
Some economists think the economy can weather the uncertainty — at least through to the election. ”It’s July now, and early November is soon,” says [Justin] Wolfers, who is currently a visiting professor at Princeton. “While I can see the fiscal cliff having an effect on financial markets and on confidence fairly quickly, it’s hard to see that effect having much of an effect on the real economy prior to the election. Given that, if all you cared about were electoral math, it would make sense to go for the populist policy choice now.”
Others question whether simply putting off the hard decisions would actually comfort the markets. “Few believe there will be any kind of progress on this or any other major fiscal issue prior to the election, [so] standing his ground through the election should do no economic harm,” says Mark Zandi, chief economist at Moody’s. “Most important, addressing the fiscal cliff (including the Bush-era tax cuts), extending the Treasury debt ceiling, and laying out a credible path to fiscal sustainability should be done together. Addressing them one at a time will create more uncertainty, greater political brinksmanship, and ultimately a much worse outcome for the nation’s fiscal outlook and the economy.”
The administration’s view is that they are trying to defuse the economic uncertainty by simply moving forward on the policies that everyone supports. “While I disagree on extending tax cuts for the wealthy, because we just can’t afford them, I recognize that not everybody agrees with me on this,” Obama said. ” On the other hand, we all say we agree that we should extend the tax cuts for 98 percent of the American people. Everybody says that. The Republicans say they don’t want to raise taxes on the middle class. I don’t want to raise taxes on the middle class. So we should all agree to extend the tax cuts for the middle class.”
