Starbucks CEO Wrong About Fiscal Cliff - Business Insider

Paul Krugman gently chides Starbucks CEO Howard Schultz in his New York Times column today.

Specifically, Krugman says that Schultz is either willfully distorting the Fiscal Cliff situation or has been brainwashed by "debt-scold" groups into thinking that the real issue here is the deficit and that the Democrats bear half of the responsibility for the failure to reach a deal.

Krugman acknowledges that Schultz is widely considered a good guy who does good things for the world, so he chalks up Schultz's position to brainwashing rather than willful manipulation.

And what is it that Schultz said that pushed Krugman over the edge?

[Schultz] posted an open letter urging his employees to promote fiscal bipartisanship by writing ?Come together? on coffee cups...

In the letter, Mr. Schultz warned that elected officials ?have been unable to come together and compromise to solve the tremendously important, time-sensitive issue to fix the national debt,? and suggested that readers further inform themselves at the Web site of the organization Fix the Debt.

Krugman picks out three key problems with this statement:

• First, the concern about the Fiscal Cliff has NOTHING to do with the debt and deficit problem. If the goal is just to reduce the deficit, then Schultz should be urging the government to boycott the negotiations and insist on going over the Cliff. Because going over the Cliff will lead to automatic tax hikes and spending cuts that will reduce the deficit. The concern about the Fiscal Cliff is actually that it will slow the already weak economy, perhaps throwing us back into recession.
• Second, Schultz's language suggests that both sides are to blame for the inability to reach a compromise. In fact, Krugman says, the Republicans are to blame. And Krugman is right that the Democrats have made huge concessions and the Republicans have just rejected them and made sweeping responsible-sounding condemnations. If we go over the Cliff it will be almost entirely the Republicans fault.
• Third, "Fix The Debt" says it is a non-partisan group, but its recommendations are very much aligned with general Republican recommendations.? So, Krugman says, Schultz is basically referring readers to a Republican mouthpiece.

So, who's right?

Krugman's right.

The potential deal that the government is very close to reaching is not designed to "fix the debt." It's designed to avoid walloping the already weak economy. In all likelihood, the deal will actually make the debt worse, at least over the short term.

The government also desperately needs to enact a long-term deficit reduction plan, but that's not what's on the table here. The government has had years to come up with that plan, but neither side has been willing to do it.

So in that respect, Schultz is right: We do need our government to come together to do the job we elected the government to do. But that has nothing to do with the Fiscal Cliff.

Also, for what it's worth, if Howard Schultz (who, by most accounts, is indeed a very good guy who has done many cool things for the world) really wants to help the economy and country, he can do one thing that's very much within his control:

Give his baristas a raise.

The main problem with the US economy is that the middle class is broke. The middle class spends most of the money in the economy. But Starbucks' wages, like the wages of most big retail establishments, are so low that employees are barely even middle-class. The Starbucks company, meanwhile, is coining money. If Schultz were to start a trend by voluntarily giving all of his baristas a raise, he would help increase the purchasing power of the middle-class. This would do a great deal to help the economy.

SEE ALSO: The Two Sides Are Absurdly Close On A Fiscal Cliff Deal -- Here's The Latest Offer

Source: http://www.businessinsider.com/starbucks-ceo-wrong-about-fiscal-cliff-2012-12

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