Why Economists Are United in Their Hatred of the Fiscal Cliff Deal Andrew Harnik / The Washington Times / Landov People gather outside the U.S. Capitol in Washington, Jan. 1, 2013. One of the truths revealed by the debate over the fiscal cliff is that lawmakers in Washington are in bitter disagreement over the cause of and solution to our economic malaise. There is the Keynesian camp, which believes that the economy is being hindered by a general lack of demand, and that the government needs to spend more in order to get the economy going again. Then there is a faction of economists - let's call them the uncertainty hawks - who believe that businesses and individuals would be more willing to make the investments necessary to spur economic growth if they had a clearer idea of future tax bills and government spending levels. And finally there are the deficit hawks, who believe economic growth is being hampered by large federal deficits and debt, and that the best way to encourage economic growth is to shrink the deficit, mostly through reducing government spending. With the recent deal over the fiscal cliff, however, a strange thing happened: Despite the fact that many of these camps" ideas are in direct opposition with one another, the final deal ended up satisfying nobody - causing economists across the ideological spectrum to declare the deal a dud. Here are their respective reasons: The Keynesians: Sure, the U.S. government is running budget deficits of more than $1 trillion per year, while the total national debt sits at more than $16 trillion. But for many economists, these numbers aren't the most pressing problems our economy faces - not by a long shot. For Keynesian economists Dean Baker, Paul Krugman, and Brad DeLong it's the unemployment rate, now at 7.7%, that should worry us most. So it was frustrating for them to see that both Congressional Republicans and President Obama appeared to want to see deficit reduction as part of a broader fiscal cliff deal. We did kinda sorta see - depending on how you look at it - some long-term deficit reduction. According to the non-partisan Committee for a Responsible Budget, the fiscal cliff deal shaves $650 billion from the ten-year deficit when compared to current policy. But, again, Keynesians would like to have seen more government spending, not less. In addition, while the deal did extend unemployment insurance benefits for another year, it failed to extend the payroll tax cuts, which will raise taxes by 2% on the first $110,000 a worker earns. That hits many of the folks most likely to spend their marginal dollars. The Uncertainty Hawks: Several economists, including the University of Chicago's Steve Davis, recently devised a method for measuring economic policy uncertainty, which shows that uncertainty regarding tax and spending policy in the U.S. is higher in the past five years than it has been in some time. That same research suggested that this high policy uncertainty is correlated with stock market volatility as well as other indicators of economic stress like yields on some European government debt. And, alas, those who believe Davis" contention that much of the blame for the sluggish economy can be placed on temporary and patchwork policy-making from Washington have little to like about the most recent fiscal cliff deal. It's true that individual income tax rates, the capital gains tax, and the estate tax have all been "permanently" set (or as permanently as an act of Congress can be). But huge issues remain unresolved. Namely, the automatic budget cuts put in place during the 2011, as well as the need to raise the federal debt ceiling, still need to be dealt with in the next two months. The Deficit Hawks: There is a third school of economists who are concerned primarily about the total debt of the federal government hindering current and future economic growth. This faction, which includes Michael Boskin of Stanford, worry about government debt "crowding out" private investment as holdings of U.S. Treasury bonds replace capital in investment portfolios. In addition, they argue, current government borrowing will require taxes in the future to rise, leading businesses and individuals to cut back on their spending to prepare for this eventuality. Because of the automatic tax increases that were set to go into effect at the beginning of 2013 - and sensing a broad public appetite for belt-tightening - these deficit hawks saw the fiscal cliff negotiations as the perfect opportunity to put a serious dent in the debt. For these folks, however, the deal's $650 billion in deficit reduction (over ten years), mostly from raising taxes on high-income earners, is a drop in the bucket compared to the $16-plus trillion the federal government owes. And Congress and the President could not agree to any meaningful cuts to Social Security and Medicare, the entitlement programs that are projected to eat up larger and larger shares of the federal budget as the nation ages and healthcare spending continues to rise. Like any compromise that comes out of Washington, the fiscal cliff deal has left a bad taste in partisans on the left and the right. But at least each side got something it wanted. Hard core progressives want to see the rich pay a larger share of the federal tax burden, and in 2013 they will. Many on the right did not want to see capital gains taxed as ordinary income, and they got what they wanted for all but the wealthiest earners. But economists can't view bills in such a piecemeal fashion. Compromise on economic policy - like trading extended unemployment benefits for ending the payroll tax cut - isn't going to satisfy a Keynesian if the net effect is to reduce the federal budget deficit during a recessionary economy. While Washington may still be able to eek out a compromise on legislation, it's now clearer than ever that lawmakers are hopelessly divided when it comes to economic world views. The economic policy of the United States government isn't so much directionless as attempting to go in every direction at once.