Facing the Fiscal Cliff

Well now that the U.S. election is over, attention has turned to the impending “Fiscal Cliff” that the U.S. government will face at the end of 2012. This terrifyingly named phenomenon will occur when a series of taxes will increase, while at the same time there will be large spending cuts to numerous government programs. In spite of the fact that this would reduce their budget deficit by a much needed $540 billion per year, we are told that they can’t allow this to happen. If they do, the GDP will be reduced by four percentage points in 2013 and the economy will go into recession. This decrease, the Congressional Budget Office tells us, will result in the loss of two million jobs.

The question that needs to be asked is, why do we care if there is a recession? All that means is that the market value of goods and services in the country has decreased. This could be good or it could be bad. If it’s because there’s less need to spend money on building weapons, or cleaning up pollution then it’s a good thing. What’s important is what money is being spent on, not on how much is being spent. Surely the only thing that should concern us about a recession is the potential loss of jobs.

So why not allow the tax increases and program cuts to happen as planned, and then address the job losses? Two million jobs sounds like a lot, but to forgo $540 billion to save them amounts to $270,000 per job. If instead the government hired all two million people directly for $50,000 per year each, it would only cost $100 billion. It wouldn’t even cost them this much because much of that money would come back to them in taxes. Also, when those two million people spent their pay it would further stimulate the real economy and create further jobs. This of course isn’t the only way to create two million jobs, but it shows that it could be done far more efficiently than by responding directly to the looming fiscal cliff. Decisions about what is good for a country should be based on how a policy benefits its citizens, and not on the rise and fall of the GDP.