The fiscal cliff is an extreme
example of what can go wrong when politicians are given a say in what stimulus
an economy should get: they use disagreements (fake or real) on what stimulus
an economy should get to push their own ideological agenda.
I’ve argued on this blog more than
once that politicians and the electorate should decide what proportion of GDP
is allocated to the public sector and how that money should be split as between
education, health, defence, etc. But stimulus decisions should be left to
technicians, which to a significant extent they already are. E.g. central banks
have a say in interest rates which in turn affect stimulus.
The latter split of
responsibilities as between politicians and technicians is also advocated in
this work which argues for full reserve banking. We’re a bright lot we
advocates of full reserve. Fiscal cliffs just wouldn’t happen if we ruled the
world.
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