The fiscal cliff.

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.