Nobel Prize Winning Economist on the Fiscal Cliff

Of course I mean Paul Krugman.

I've written here before about one path a newly elected President Obama might take--that is, doing nothing.  He could let ALL current tax rates go up in a way that would ON ITS OWN bring in something in the neighborhood of $4T in revenue.  He could let the sequester cuts go on as scheduled and cut $1.2T in spending.  (These are ten year figures).  He could let the payroll tax go back to its previous rate.  In some cases he simply does nothing, in other cases he wields an over-ride proof veto pen.

It is possible that doing so would take the economy into a recession.  But that's what Ronald Reagan did--on purpose--in his Administration.  When the economy emerged, it was in a different place and ready to grow.  Besides--he has no more elections to stand for.  This is all about legacy, and if he feels he can pull this off, he will.

If PBO does this, he winds up dramatically cutting the deficit/debt, he establishes a new baseline of revenue, and he achieves the Valhalla of Democratic policy by cutting the defense budget.  As Krugman points out, Obama holds all the cards here.

What's interesting isn't that Krugman seems to be advocating this path because he thinks it makes fiscal sense--he's doing it because he wants to see payback; naked political power exercised in the service of rubbing the Right's nose in it.

As a bit of a Machiavellian, I find myself thinking there is something to this approach.  The difference between Krugman and me is that only one of us has won a Nobel Prize in Economics.