U.S. Media Loves “Fiscal Cliff” Metaphor; The Economist Recognizes that It’s An Imaginary Line in the Sand

In the U.S., pundits cannot resist the fiscal cliff metaphor: it’s colorful, punchy and easy to understand. It’s just two words long. What’s not to like?

It’s not true.

The metaphor assumes that if Republicans and Democrats fail to reach an agreement on the budget by the end of the year, the U.S. economy falls over a cliff,  crashes, and burns.  The “cliff “metaphor complements the equally imaginative “iceberg metaphor” that some fear-mongers use to portray the deficit. (Think Titanic) 

It’s all a bit more complicated than the metaphors suggest.

What few conservatives mention is that the deficit has already begun to dissolve:  since 2009 the deficit has fallen from 10% of GDP to 7% in the fiscal year that ended on September 30th.  By historic standards this is still enormous, and must be addressed. But  the numbers demonstrate that, over time, we can reduce the deficit without renting the nation’s safety nets.

As for the cliff, there is no precipice—just an imaginary line, drawn in the sand, as Republicans and Democrats play “chicken.”

The Economist understands all of this. The lead story in the most recent issue focuses on the “cliff” and points out that “worries” about what will happen if we go over that precipice are “understandable”  but “overblown.” The “risk of economic catastrophe is minimal.” Any damage would be short-term. 

I don’t always agree with the Economist: the UK publication has its own sometimes eccentric slant on things. But on the whole, it is a thoughtful publication—well-researched and fact-checked.  Moreover, in this case, distance may give the Economist a perspective on the problem that some in the U.S. lack.

                                   Exaggerating the Threat to the Middle-Class      

Yesterday’s New York Times suggests that if we cross that line in the sand, an already beleaguered the middle-class will suffer great hardship, and this “Complicates Democrats’ Stance in Talks.” 

The analysis suggests that Democrats don’t dare just stand back and let Bush’s tax cuts expire– as they will if party leaders don’t reach a settlement by year-end: “Only a small handful of policy voices on the left are making the case for the tax cuts to fully expire. In part, that is because the economy is still growing slowly, and tax increases have the potential to weaken it.” But it is also because “If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year. That would follow a 12-year period in which median inflation-adjusted income dropped 8.9 percent, from $54,932 in 1999 to $50,054 in 2011.”

This assumes that once we miss the January 1 deadline, tax hikes for the middle-class would become permanent—which, of course, is not true. Talk about how much more a family would pay over the course of 2013 falls somewhere between hyperbole and hysteria, ignoring what everyone knows:

If the Bush tax cuts expire, Democrats will presumably simply propose to restore them in January for those [families] earning less than $250,000,” the Economist observes, “daring Republicans to block them.” 
Continue reading

6 COMMENTS SO FAR -- ADD ONE

“Fiscal Cliff” Talks: An Update

Today, for the first time since the election, President Obama and House Speaker John Boehner met alone, face-to-face, at the White House to discuss ongoing negotions over the budget.   (I can’t help but see the photo, which shows Obama with a hand on Boehnr’s shoulder, as a reference to the “Saturday Night Live” skit that appeared last night.  

I’m more and more hopeful about the budget negotiations. Recentlly, I wrote that Obama had “won round one,” explaining that I believed CNN’s report that  the Republicans and Democrats have reached a deal on taxes. “Both sides agree the wealthy will pay more, so now fiscal cliff talks come down to how much Republicans can wring out of the White House in return for giving in on taxes.”  Based on everything I know about the economics and the politics of the situation, this makes sense. /

Since then Boehner has said:  “No progress has been made.”

This does not change the story:  If, as CNN’s sources say, (and I believe) Republicans have conceded that taxes cuts for the top 2% must expire Janauary 1, while cuts for the remaining 98% will continue, that doesn’t mean they are ready to make the agreement public.

Understandably, Republicans are not willing to acknowledge that they lost round one of negotiations until they can also announce that they won something in round two.  Nor does  President Obama want to blind-side Boehner by letting it leak that a tax deal is in place. That would be counter-productive.

                          The Inside Story and the Outside Story

Recentlly, the Washington Post’s Ezra Klein reported:  “Right now, the fiscal cliff negotiations are proceeding on two tracks.

“One track includes the press releases, public statements and legislative tactics the two parties are deploying to prove the purity of their faith and their commitment to beating the other side to a bloody pulp. Watch these closely and it’s easy to get depressed.  . . ‘There isn’t a progress report;’ Republican House Speaker John Boehner sighed Friday, ‘because there’s no progress to report.’

“The other track includes the offers, counteroffers and red lines proposed by Boehner and President Obama. If you look at these closely, a deal is taking shape.”

 I agree with Ezra about the “two tracks”. But I don’t agree regarding the “shape” of the deal that is emerging.

First, I agree that  the majority of Republicans in Congress have accepted the fact that the Bush-era tax breaks for folks earning over $200,000 (and couples earning over $250,000) will have to expire. I won’t try to guess when politicians will complete the two stages of bargaining and be ready to announce a deal. We may go right up to the January 1 deadline.

Moreover, it is  possible that when it comes to cutting government spending, too many Republicans will remain stubbornly, and foolishly, intransigent — insisting on concessions that would inflict pain on the middle-class.

If that happens, I predict that President Obama will let us sail over the so-called “fiscal cliff.”  He knows this wouldn’t do any permanent damage to the economy.  As Rutgers reported today, even Wall Street does not seem panicked by the prospect: “Investors have peered over the cliff and realized they are looking at a gentle slope . . . . some investors say lawmakers still have time in early 2013 to strike a deficit-reduction deal without imperiling the economy. A survey of 62 Wall Street money managers released on December 5 showed market losses would be manageable if the U.S. goes over the fiscal cliff, even though worries still run deep.

Many on Wall Street understand that, early in the spring, the administration could undo Draconian spending cuts, while lowering tax rates for the 98%. Public pressure will ensure that happens. (In the meantime, the Treasury Secretary could lower withholding rates so that middle-class Americans didn’t suddenly see their paychecks trimmed.)

But taking a ride down that slope would do lasting damage to the GOP.  Polls show that voters would blame Republicans. This is why I think that, in the end, Republican leadership in Congress will do whatever it must to make a deal before January.  As I indicate in the post below. Tea Party extremists in the Republican party are being side-lined.

Continue reading

6 COMMENTS SO FAR -- ADD ONE