Paul Krugman Urges Obama To Not Make Fiscal Cliff Deal With GOP

 @LauraMatt
on November 09 2012 10:57 AM
Krugman
Nobel Prize-winning economist Paul Krugman has urged President Barack Obama to not make a fiscal cliff deal with Republicans. Reuters

Nobel Prize-winning economist Paul Krugman is urging President Barack Obama to not make a fiscal cliff deal with Republicans, who he says are threatening to tank the U.S. economy if they don’t get their own way.

Instead, in a new op-ed piece for the New York Times, Krugman noted Obama, who was reelected president on Tuesday, should “hang tough” and make it clear that he’s willing to let Republicans damage the already shaky economy, if necessary. Krugman explains:

This is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory. In saying this, I don’t mean to minimize the very real economic dangers posed by the so-called fiscal cliff that is looming at the end of this year if the two parties can’t reach a deal. Both the Bush-era tax cuts and the Obama administration’s payroll tax cut are set to expire, even as automatic spending cuts in defense and elsewhere kick in thanks to the deal struck after the 2011 confrontation over the debt ceiling. And the looming combination of tax increases and spending cuts looks easily large enough to push America back into recession. 

Nobody wants to see that happen. Yet it may happen all the same, and Mr. Obama has to be willing to let it happen if necessary.

Why? Because Republicans are trying, for the third time since he took office, to use economic blackmail to achieve a goal they lack the votes to achieve through the normal legislative process. In particular, they want to extend the Bush tax cuts for the wealthy, even though the nation can’t afford to make those tax cuts permanent and the public believes that taxes on the rich should go up -- and they’re threatening to block any deal on anything else unless they get their way. So they are, in effect, threatening to tank the economy unless their demands are met.

Obama complained during his first term that the Republicans were constantly blocking his efforts to get things done. And when the president was first elected to the White House in 2008, Republicans said they weren’t going to make it easy for him.

Republicans retained their House majority in Tuesday’s election.

A seemingly meeker House Speaker John Boehner recently told ABC’s Diane Sawyer that the American voters have spoken, and now Republicans have as their top priority “comprehensive, bipartisan immigration overhaul” and are ready to work on finding new revenue streams for the government.

“I would do that if the president was serious about solving our spending problem and trying to secure our entitlement programs,” Boehner said, adding that “if you’re increasing taxes on small-business people, it's the wrong approach.”

Still, Boehner has not given up on listening to Obama’s proposals. Of course, we’ll talk about it,” he told Sawyer. “We talk about all kinds of things we may disagree on. I’m the most reasonable, responsible person here in Washington. The president knows it. He knows that he and I can work together. The election is over. Now it’s time to get to work.”

But some Republicans in Congress believe Boehner may have gotten ahead of himself and them. They say Obama’s election victory doesn’t change a thing going forward.

Senate Minority Leader Mitch McConnell recently told Breitbart News that he wasn’t sent to Washington to “raise taxes to pay for more wasteful spending.”

“This election doesn’t change my principles,” McConnell says. “This election was a disappointment, without doubt, but let’s be clear about something: The House is still run by Republicans, and Republicans still maintain a robust minority in the Senate. I know some people out there think Tuesday’s results mean Republicans in Washington are now going to roll over and agree to Democrat demands that we hike tax rates before the end of the year. I’m here to tell them there is no truth to that notion whatsoever.”

Louisiana Republican Rep. John Fleming also echoed similar sentiments, saying Boehner shouldn't be making promises without first discussing with fellow House Republicans.

“I’m concerned that Speaker Boehner is getting ahead of House Republicans when he commits to getting a ‘comprehensive approach’ to immigration taken care of ‘once and for all,’” Fleming notes in a statement to the Daily Caller. “There’s been zero discussion of this issue within the conference, and I’m urging the speaker to talk with House Republicans before making pledges on the national news. The first thing we need is for President Obama to finally enforce current immigration law and strengthen our borders. To take up any other agenda is bad policy for the American people and bad politics for Republicans. The speaker needs to pull back on this issue and stop negotiating in public.”

The talk about more tax revenue puzzled Fleming because of Boehner's "willingness to put new tax revenue on the table when the expiring Bush tax rates come before Congress."

“Let’s be clear, raising taxes during a very slow recovery is likely to lead to another recession, and it will do absolutely nothing to balance the budget," he says. "Washington does not tax too little; it spends way too much. I am concerned that the speaker’s comments, while vague, are inferred by many as a willingness by Republicans to raise taxes; that would be a big mistake.”

But after Republicans refused to raise the debt ceiling in the past -- essentially leading to a credit downgrade and the impending fiscal cliff crisis -- Krugman says a tough Obama should see to it that the “hostage-taking, the threat of making the nation ungovernable” doesn’t “become a standard part of our political process.”

And to reveal a little secret, the economist says the worrisome fiscal cliff "isn’t really a cliff."

“It’s not like the debt-ceiling confrontation, where terrible things might well have happened right away if the deadline had been missed,” he writes. “This time, nothing very bad will happen to the economy if agreement isn’t reached until a few weeks or even a few months into 2013. So there’s time to bargain. More important, however, is the point that a stalemate would hurt Republican backers, corporate donors, in particular, every bit as much as it hurt the rest of the country. As the risk of severe economic damage grew, Republicans would face intense pressure to cut a deal after all.”

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