New article in the Huffington Post: Why conservatives shouldn't fear the fiscal cliff

I have a new article up at the Huffington Post. Basic idea: Conservatives tend to believe in the power of forward-looking expectations. That will tend to reduce the impact of the fiscal cliff - yes, even the distortionary part - because if people are forward-looking, they will have been expecting taxes to go up ever since Reagan raised deficits in the 80s, and this will dramatically reduce the impact of the cliff. Excerpt:

[A]ccording to a central tenet of conservative economics, the fiscal cliff is not going to be a big deal. I'm talking about the principle known as "Ricardian equivalence."... 

Ricardian equivalence has become a pillar of conservative thinking about economic policy. When President Obama was preparing the 2009 "stimulus" bill, a number of economists -- including Robert Barro himself -- took to the editorial pages to vigorously protest. Deficit spending, they argued, couldn't boost the economy, because people would expect future taxes to pay for today's spending, and would cut back accordingly, exactly canceling out the "stimulus." 

By the same logic, conservatives shouldn't be worrying about the fiscal cliff. Yes, taxes will go up if we go over the cliff. But according to Ricardian equivalence, people have known all along that this would have to happen at some point, and they have been planning accordingly... 

In other words, the fight over the fiscal cliff might just be an elaborate form of political kabuki theater. Conservatives, if they believe their own economic doctrine, are probably not actually losing any sleep.

Read the whole thing here!