Asymmetrical Information - Megan McArdle
12.04.12 6:40 PM ET
Who Gets More Damaged If We Go Over the Fiscal Cliff?
Polls say Republicans will probably get more of the blame if we go over the fiscal cliff. I assume that's true. But many of the commentators I've seen on this seem to have mentally translated this into the conclusion that if we go over the fiscal cliff, this will hurt Republicans more than Democrats. I'm much less sure that's true--indeed, I think that for Obama, it's probably false.
In some sense, Obama's now beyond getting hurt--he can't get re-elected again. But presumably, he'd like to spend the next four years building some kind of enduring legacy. If the economy tips back into recession, that's pretty much not going to happen. There will be no fiscal or political space to do anything but hunker down and wait for it to be over.
Instead, his legacy will be "after eight years and a lot of big talk, the economy was still terrible". He will not only have tarnished his own reputation, but the one that Democrats have been cultivating--largely on the basis of Bill Clinton--for being the ones who make the modern economy grow. As stupid and irrational as it may be, people blame the guy in the oval office for the economy. Luckily for Obama, they're still blaming the last guy who was there. But if we have another recession, while unemployment is still 8%? Five years in, "It's all Bush's fault" is wearing pretty thin as an explanation for everything that you don't like about the economy. And if there is one thing that might actually get Obamacare repealed, it's collapsing tax revenue and pinched households enraged about their insurance bills.
Of course, Democrats can go on the stump and explain that it is all the GOP's fault for forcing us over the fiscal cliff. I, for one, would certainly pay cash money to watch Democrats spending much of their valuable campaign time and ad money explaining to voters that tax increases destroy the economy. Whatever effect this might have on voters, it would certainly be entertaining for the pundit class.
Don't get me wrong: I'm sure that Republicans will take a lot of heat if they let us go over the fiscal cliff, especially from their donors and their base. Which is why I assume it won't happen. But if it does, I suspect that Republican chances in 2016 get better, not worse.