There's a lot of talk going around about how the fiscal cliff isn't really a cliff - it's a gradual slope. I'm sure that's reassuring to some people. What I find interesting is that that claim has an implicit assumption about rational expectations in it, and it's actually a pretty simplistic claim that caused quite a ruckus among economists several decades back.
And it's not just a mean freshwater assumption. It's the assumption that liberal economists used to complain about Bush's tax rebates.
So what do we conclude from this slope vs. cliff claim? Are all the people claiming that the reality is a "fiscal slope" naive when it comes to expetations? Or do they have intuitive insight into an issue that for macroeconomists has just been full of sound and fury, signifying nothing?
Friday Night Music: When I’m 64
1 day ago