Wall Street CEOs Hoping We Don't Get The Fiscal Cliff Joke
My column from today's Roll Call explains why the letter about avoiding the fiscal cliff sent last week by the CEOs of many of the biggest names on Wall Street to Congress and the White House was something of a bad joke.
Unfortunately, the Fiscal Cliff Joke Is on Us
Have you heard the one about the big-name financial services CEOs who last week released a letter to Congress and the president demanding they do whatever it takes to avoid the fiscal cliff?
I have no doubt the CEOs were sincere: The fiscal cliff is terrible policy and a ridiculous situation that should be avoided.
But the CEOs’ letter attempts to have it both ways. It demands that the cliff be prevented without the bank and insurance company leaders ever admitting that what they’re really lobbying for is a higher federal budget deficit next year.
We have Federal Reserve Chairman Ben Bernanke to thank for this.
I am not a Bernanke hater. To the contrary: I’m a big fan who applauds the job he’s done and thinks most of the criticism he and the Federal Reserve have received in recent years has been either overwrought hand-wringing or politically motivated tripe.
However, my appreciation for Bernanke doesn’t stop me from fervently wishing he hadn’t been so circumspect when he introduced the phrase “fiscal cliff” to the world last year. Ever since, the actual meaning of what Bernanke was saying either has gotten lost in the translation from Fedspeak to English, or, as happened with the CEOs’ letter last week, the phrase has allowed those who have used it not to say what they are really supporting.
Bernanke used “fiscal cliff” to talk about the combination of tax increases and spending cuts that, if they go into effect Jan. 1 and 2 as required by current law, will reduce the federal deficit by about $500 billion from fiscal 2012 to fiscal 2013. That would come at a time when the other components of the gross domestic product are not expected to be growing fast enough to offset the effect of the reduction in economic activity. As a result, as the Congressional Budget Office and others have forecast, the U.S. economy will fall back into a recession.
The literal translation of what Bernanke said when he first talked about the fiscal cliff is as follows: Congress and the president should take action to increase the deficit.
Using fiscal cliff instead of “increase the deficit” was brilliant short-term politics and communications for the Fed. In the world that exists today on Capitol Hill, Bernanke talking directly about the need for a higher deficit would have provided many in Congress with a too-easy target and made the Fed appear to be out of touch with the times.
This was especially the case because the Fed was already under attack from some for not fulfilling its regulatory responsibilities in the years before the financial crisis, from others for using unprecedented monetary policy tools and by still others who think improving the economy when they are not in power is none of the Fed’s business.
Directly supporting a higher deficit would likely have tipped the political scales against the Fed and overwhelmed the efforts it has been making the past few years to communicate directly with the American people.
The problem is that, however understandable Bernanke’s circumspection might be, both he and all of those who take up the stop-the-fiscal-cliff-now cause are not also being forced to say that budget deficits are not always bad, don’t always have to be lowered and that federal debt is not the tool of the devil it often is said to be.
The CEOs’ letter took advantage of this Bernanke-provided get-out-of-jail-free card. The letter specifically said, “We urge you to negotiate a bipartisan agreement as quickly as possible to prevent us from going over the fiscal cliff so we can avoid the damage to the economy and the markets that inaction will cause.”
For the record, “fiscal cliff” is mentioned six times in the letter’s seven paragraphs, but the word “deficit” never appears at all. There’s also no mention that cutting spending and increasing taxes would be the wrong thing to do at the start of 2013. And even though the mathematics is incontrovertible, CEO support for the resulting increase in the federal debt is nowhere to be found.
There’s absolutely no doubt that the CEOs who signed the letter — some of the biggest names in the financial world — were indicating that higher budget deficits and federal debt would be acceptable to them. But they artfully avoided saying it directly. Like Bernanke, that will give them the ability to deny their support for a higher deficit and preserve their ability to deal with Congress on other issues. After all, they’ll be able to say that they were for preventing the fiscal cliff from doing economic damage rather than insisting that higher deficits were appropriate.
This is the kind of obfuscation and spin that will make matters worse for the federal budget debate.
It means that no matter what happens near Jan. 1, the fiscal cliff will have a longer-term negative effect on the budget debate that wouldn’t have happened if Bernanke and the financial services CEOs had been willing to talk openly about what was needed.
Frankly, that’s no joke.