
Wall Street is pushing Congress to enact a large deficit-reduction deal that takes a hatchet to retirement programs and spending that helps the middle class in order to boost their own profits and pay less in taxes. Wall Street advocates have concocted a series of arguments aimed at scaring policymakers and the public into accepting a bad budget deal.
Here are a few of the more common fallacies Wall Street and its advocates in Washington are promoting.
MYTH: There will be massive layoffs if we go over the cliff.
REALITY: This is not true. The economy will not immediately plunge into a recession if there is not a budget agreement by January 1.Going over the fiscal cliff could be perilous, but no deal is preferable to a bad one that cuts Medicare, Medicaid and Social Security. In January the Senate would immediately push to revive the lower tax rates for everyone but the top 2 percent.
MYTH: In reaction to the uncertainty, financial markets will go into a tailspin if there's no deal on January 1.
REALITY: The daily fluctuations of the stock market are not very important in the decision-making processes of most companies in the real economy. For example, when the stock market fell over 500 points in October 1987, the economy grew at a 7% annual rate the following quarter. One thing does not necessarily lead to another.