Monday, December 24, 2012

The Fiscal Cliff

The fiscal cliff gets its name from the fact that tax increases and spending cuts will reduce aggregate demand and harm the economy--IF YOU THINK AGGREGATE DEMAND IS NOT FIXED.

Didn't Republicans go on and on about how the Obama tax cuts and spending hikes didn't help the economy? Why do they care about the fiscal cliff?

Maybe it's because tax cuts don't help but tax hikes hurt and similarly for spiking hikes, but I'm guessing many of them went on record saying they would repeal the stimulus so that would be ruled out.

I can't figure it out. Maybe its because they only think tax rates on the rich matter because they have an enormous elasticity of labor supply.

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