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Showing posts from September, 2012

Fiscal Cliffs and Monetary Mountains

On September 13, economist Frank Shostak had an article on about the upcoming “fiscal cliff,” which he explains this way: 
The "fiscal cliff" refers to the impact of around $500 billion in expiring tax cuts and automatic government-spending reductions set for 2013 as a result of successive failures by Congress to agree on some orderly alternative method of reducing budget deficits. The impact, according to the CBO, is that the federal deficit could fall by nearly half (43%), from $1.128 trillion in 2012 to $641 billion in 2013. 

How should we interpret this projection?  The IMF and CBO think it’s a looming disaster.  But the IMF and CBO are not staffed by Austrian economists.  Shostak:
Ultimately what matters for the economy is not the size of the budget deficit but the size of government outlays — the amount of resources that government diverts to its own activities. Note that, because the government is not a wealth-generating entity, the more it spends, the more…