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
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.”