The Fiscal Cliff and Causality

by Ophelia photos / Foter / CC BY-NC-ND

Since the election, the DC wonkosphere has been abuzz about the impending “fiscal cliff.” Frank Shostak wrote a Mises daily about the now-famous cliff way back in September. His conclusion? The hubbub about the fiscal cliff is so much nonsense that disguises the real issues.

Walking down the hallway at work last week I overheard the following snippet of a conversation:

“Well, it has to be fixed somehow.”

“Don’t worry about it, the government will pay for it.”

I have no idea what they were talking about but it was the response that really stuck with me – as if government paying for something magically dismisses all concerns about where the resources will come from. I see in this the essence of the role of government finances in scrambling popular reasoning about cause-and-effect. We have trillions of dollars flowing this way and that way. The government borrows from itself to pay itself. Then it borrows from us to pay us. And somewhere along the way, it bails us out with money it prints but which is backed by the full faith and confidence of… us.

We have been stuck in an economic slump since 2008. Four and a half years and counting. We have been personally assured by Paul Krugman that things would have been much worse had the government not intervened. But the question is: much worse for who? For the 22+% unemployed?

Let’s briefly review some recent history:

2001-2003: The US government begins its multi-trillion dollar, decade-long War on Terror; Greenspan begins to inflate to “cushion” the dotcom bubble and to compensate for the supposed negative effect of 9/11 on the economy
2008: Housing collapse ensues; financial system itself put at risk of collapse
2008-present: Ongoing bailouts and government interventions
Fiscal Cliff: No connection to any of the preceding events

If there’s a cliff, I think it’s safe to say that we went over it back in 2008 and we’ve been in free-fall ever since. And no, we’re not about to hit bottom on Jan 1. But we will hit bottom one day sooner or later.

The larger issue, as I see it, is the general inability or unwillingness of the public to connect the dots. It is true that the specific causal linkages of a collapse are too complex for anyone to even begin to comprehend. Look how much complexity was involved just in untangling the Enron mess, for example. But the Federal government is a government that spends nearly half the national product by its own estimates, that spends more on military expenditures than the next thirteen largest national military budgets combined, that is “rescuing” the economy while at the same time nationalizing healthcare. It requires no leap of faith to suggest that perhaps the reckless, wastrel spending of the Federal government might have some remote connection to the predicament of its balance sheet, if it can even be called that.

But even this meager causal connection goes unmentioned in the US media. As far as I can tell, the public doesn’t seem to notice or care. In Human Action, Mises addressed the revolt against reason. The revolt against causality is merely a corollary of the wider revolt against reason and, therefore, shares its root motivation: the furtherance of the socialist, egalitarian agenda at all costs. And how terrible those costs.

Clayton

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