What is Really the Fiscal Cliff All About?

The fiscal cliff.  It’s the most boring political story of the year.  It has none of the human drama of an election campaign.  None of the white-knuckle terror of a financial system calamity.  Just a lot of endless, tedious negotiations leading up to the inevitable deal.

Except soon we are going “over the cliff” again.  Probably not forever.  Probably some deal will pull us partially back this March.  But for a little while at least, we’ll be cliffed.

You may be sitting around mildly regretting having skipped past all of the past four months’ worth of fiscal cliff stories.  But do you have any idea what it means? In particular, what does going over the cliff means for you?

This puts our present U.S. economic situation in better view--Perspective # 1:

* U.S. Tax revenue:           $  2,170,000,000,000

* Fed budget:                   $  3,820,000,000,000

* New debt:                      $  1,650,000,000,000

* National debt:                $ 14,271,000,000,000

* Recent budget cuts:       $       38,500,000,000

Now remove 8 zeros and pretend it's a household budget:

* Annual family income:                   $  21,700

* Money the family spent:                $  38,200

* New credit card debt:                    $  16,500

* Outstanding credit card balance:    $142,710

* Total budget cuts so far:                $         38.50

Got It ????? 

OK now, here's another way to look at the Debt Ceiling--Perspective # 2:

Let's say you come home from work and find there is a sewer backup in your neighborhood and your home has sewage all the way up to your ceilings.  What do you think you should do...raise the ceilings or remove the crap?

This is basically bad news all around.  A deal to at least relieve the middle-class tax aspect of the cliff passed a few weeks ago.  The new baseline lets everyone call the deal a “tax cut” and undo much of the harm to the non-rich.  Most of us will still see some tax increases because we all have to do something about the debt all of us have been part of over the last 40 years.

The bottom line: It’s a political issue for now, not really an economic issue.  It’s a political issue because the deadline is something the Democrats and Republicans imposed on themselves to fight about.

From an economic perspective, there is no urgency to solve the problem this month.  But there is the reality that there can be no significant economic “security” again in this country without fundamental structural and societal reforms any more than your household budget/debt would improve in the above example by agreeing not to buy potato chips to eat while watching Monday Night TV Football.