Left, right, wrong

One interesting sidelight to the fiscal cliff debate has been the way pundits on the left and right have been competing to badmouth the US economy.  Right wing commentators, few if any of them economists, argue that four years of Obamanomics have left the US economy debilitated.  Over on the left, the commentators include a lot more economists, with Paul Krugman among the most vocal.  Their argument is that the US economy is still much too weak for policymakers to contemplate any removal of fiscal stimulus.  Not too long ago in the NYT, Krugman actually used the term "deep depression".

The Krugmanites, if I may call them that, are closer to calling this correctly (though that "depression" comment is ludicrous),  yet paradoxically. theirs is the trickier case to make.  The first Obama term saw record-shattering fiscal deficits and unprecedented monetary stimulus.  If you argue, as the left does, that the economy is still in a funk, then in effect you're saying that all that stimulus hasn't worked -- in which case, it's legitimate for your opponents to ask why you suppose that more of the same will suddenly make everything better.

In any case, both sides are wrong about the state of the US economy.  Sure, the recovery has been tepid for the most part, and unemployment is painfully high.  By comparison with the rest of the world, however, the US economy is moving ahead quite well, with slow but steady job creation, new activity in the energy sector,  a turnaround in the auto sector, and even some positive signs in the housing market.  Right wingers choose to ignore all of these positives because they're fixated on the fiscal situation, with one of the loudest voices, Mark Steyn, characterizing the US as "the brokest nation in history".

Steyn et al may be exaggerating, but there's no denying that the US fiscal situation risks becoming unmanageable -- indeed, it would already be so if foreign investors and the Fed were not still buying US debt.  That's why the pathetic deal that supposedly averted the fiscal cliff is such a serious failure of nerve.  Someone, whether it's on the Republican or the Democratic side of the Congress, is eventually going to have to tell US voters a very uncomfortable truth:  the United States can't continue to move toward European-style social programs while pining for 19th century taxation rates -- and it certainly can't do either of those things if it wants to maintain the world's largest military machine.

The fiscal cliff deal addresses none of this -- in fact, it will add $4 trillion to US debt over the next decade, according to the CBO. It's all but impossible to believe that the next round of negotiations, over the "sequestered" spending cuts and the debt ceiling, will get any farther.  Fact is, the Republicans are broadly right that something serious has to be done about the fiscal situation, and the Democrats are right to warn about putting the economy at risk by doing anything hasty -- after all, the key to solving any fiscal crisis is growth.  However, the two sides now evidently hate each other so much that it's hard to see how they will be able to find common ground.