Jonathan Chait, writing a few weeks ago (October 14), spun out a lengthy string of reflections and predictions well before Hurricane Sandy and Election Day. Not knowing what the outcome of the election might be he covered a lot of ground and several scenarios. Overshadowing them all was the ominous spectre of that fiscal cliff now being featured any time talking heads, politicians or just about anybody runs out of anything else to say. Those references always seem to carry the fatalistic attitude of "Well, we're all gonna die some day anyhow..."
Next time that term comes around, Chait's explanation here will help you remember to take a breath calm down a little and stop rolling your eyes.
The term “fiscal cliff” has leached into the broader political lexicon, though few people understand what it means, and many of them invoke it to mean its precise opposite. Among Republicans, especially, “fiscal cliff” has come to signify their Obama-era fears of a Greece-style debt crisis. Pete Peterson, an investor and longtime fiscal hawk, has devoted more than a half-billion dollars to lobby for a bipartisan debt-reduction agreement, funding a vast network of centrist anti-deficit activists, like the Concord Coalition, the Committee for a Responsible Federal Budget, and an organization called “the Campaign to Fix the Debt,” all of which have pounded a national drumbeat warning against the perils of the fiscal cliff. “Rhetoric won’t fix the debt, action will,” warns a statement by Fix the Debt. A “solution to the nation’s fiscal crisis,” scolded the Washington Post editorial page, which closely echoes the views of the Peterson network, “can be implemented only if Republicans and Democrats hold hands and jump together.”
This is all utterly wrong. Bipartisan agreement is not necessary to fix the debt. Nothing is necessary to fix the debt. It is as if the network of activists, wonks, business leaders, and Beltway elder statesmen who have devoted themselves to building cross-party support for a deficit deal have grown more attached to the means of bipartisanship than to the ends for which it was intended. The budget deficit is a legislatively solved problem. It is, indeed, an oversolved problem. In the absence of any agreement between the president and Congress, the deficit will shrink to less than one percent of the economy by 2018, and remain below that level through 2022. The budget deficit declines so sharply and so drastically, and in ways that neither party is entirely comfortable with, that the task for Washington is to pull back on deficit reduction.
It’s true that should all this come to pass and Congress does nothing at all, allowing all automatic deficit reductions to stay permanently, then our economy would be hit by a powerful shock—a massive anti-stimulus. This is the outcome that terrifies moderate liberals like Howard Fineman, who warns that the nation is about to “go over the fiscal cliff with no hang glider.”
But here is a case where a bad metaphor has caused everybody to think about the matter in exactly the wrong way. When you walk off a cliff, the first step is your last. There is no such thing as falling halfway down a cliff. But the “fiscal cliff” is not a cliff at all. The economic damage is cumulative. It is the opposite of the debt ceiling, when the doomsday clock ticked down to a moment of sudden calamity. A full year of inaction would do a lot of damage, but a week, a month, or even a couple of months would not. The president would have enough control over the mechanics of the budget to delay the effects of higher taxes and spending cuts in order to cushion the blow to the economy. Even if the tax hikes and spending cuts go into effect, any deal that gets signed later could be retroactive. Meanwhile, the Federal Reserve could also take emergency action to keep the recovery afloat.
His reason for pointing out these obvious realities was the hope that Obama in a second term would be is now holding all the cards of a winning hand. This delightful imaginary sequence of events is what came from Jonathan Chait's imagination.
It remains to be seen whether we will see that kind of hardball. But should it come to pass just know that this president may not have a history of political confrontation but at the moment he can have the smug confidence of Twain's Christian holding four aces. We have seen many sides to Barack Obama's leadership style. The guy plays checkers if he needs to but he's more impressive at chess. As I read Chait's article I put up a post at another blog by the same title as this one which led me to a reassuring conclusion about Obama's leadership ability.
...Obama does have a plan to break the legislative impasse and settle the long-term struggle over the scope of government. It does not rest on the GOP’s coming to its senses and thinking of the national good. The plan is the very opposite of naïve. And he can put it into effect even more quickly than Romney could enact his own plan.
Here is how it will happen. On the morning of November 7, a reelected President Obama will do … nothing. For the next 53 days, nothing. And then, on January 1, 2013, we will all awake to a different, substantially more liberal country. The Bush tax cuts will have disappeared, restoring Clinton-era tax rates and flooding government coffers with revenue to fund its current operations for years to come. The military will be facing dire budget cuts that shake the military-industrial complex to its core. It will be a real-world approximation of the old liberal bumper-sticker fantasy in which schools have all the money they require and the Pentagon needs to hold a bake sale.
All this can come to pass because, while Obama has spent the last two years surrendering short-term policy concessions, he has been quietly hoarding a fortune in the equivalent of a political trust fund that comes due on the first of the year. At that point, he will reside in a political world he finds at most mildly uncomfortable and the Republicans consider a hellish dystopia. Then he’ll be ready to make a deal.