Some Views on the “Cliff”

On the topic of public policy, this Works Progress Administration (WPA) poster from the 1930s seems particularly relevant this year. You may have heard of the “fiscal cliff” that the federal budget will fall off in January, under existing law. It will be quite a fiscal contraction, if it happens as scheduled: about 4 percent of last year’s GDP, to use these numbers from the Congressional Budget Office (CBO). This total includes both tax increases and spending cuts, but not the offsetting effects of “automatic stabilizers,” such as lower income taxes for people whose incomes are adversely affected by the cliff itself. The CBO report projects that this set of changes would lead to a recession early next year. (Briefly, the changes that make up the cliff are (1) the expiration of the “Bush tax cuts,” the 2 percent payroll-tax holiday, and some other tax cuts; (2) the across-the-board spending cuts broadly agreed to by President Obama and Congress as part of last summer’s deal to raise the debt limit; (3) the end of new emergency extended unemployment benefits; (4) reduced Medicare doctor payment rates; and (5) tax increases included in the “Obamacare” health act passed by Congress in 2010.)

I chose the image at the top of this post out of many available free-of-charge at the Library of Congress’s WPA-poster archive mostly because of its cliff theme (this poster happens to depict a place in the state of New York, perhaps a few hours’ drive from the Institute). But we also hope the image will offer readers some hope—as the WPA did for unemployed artists and others during the 1930s. The White House and many in Congress are working on legislation that may lessen the severity of next year’s fiscal crunch. These important proposals will mostly aim to delay or cancel scheduled changes to spending programs and the tax code. To really tackle the unemployment problem, however, Washington ought to consider a large-scale public-employment program a bit like the WPA. As the website for our employment policy and labor markets research program points out, “Levy Institute scholars have proposed a full-employment, or job opportunity, program that would employ all who are willing to work and increase flexibility between economic sectors…”  You might want to take a look at some of the many publications at that website that deal with the potential design and impact of full-employment, direct job creation programs.