Please Explain: The Fiscal Cliff

Friday, November 16, 2012

David Wessel, economics editor of The Wall Street Journal and author, most recently, of Red Ink: Inside the High Stakes Politics of the Federal Budget, and Mattea Kramer, Senior Research Analyst, National Priorities Project, and lead author of National Priorities Project's new book, A People’s Guide to the Federal Budget, explain what the fiscal cliff means, why we’re heading for it, and ways Washington can solve the nation's budget problems.


Mattea Kramer and David Wessel

Comments [11]

The fiscal cliff - is entirely a construct of our political structure.

Left/Right/socialist/Capitalist all agree that :

GDP = C + I + G + NX

C = Consumption Spending (usu. about 80% of GDP)
I = Investment
G = Government spending
NX = Net Exports (Exports - Imports)

Therefore, cutting government spending during a recovery (called for by sequestration), when Consumption spending is weak, can lead the country back into recession. Not acting more quickly on Employment when we had the chance turns out to have not been such a good idea. Some us will blame Obama...Some of us hold the lackluster Congress more responsible than the President.

The end of the Bush Tax Cuts - which were limited to ten years in order to avoid 'long term' impact to our debt - also whammies Consumption spending as more income is given to the Government in taxes.

It is past time to pay for all of the deficit spending from the Bush years and the Recession-induced spending of the early Obama years. I would like the government to start with increased employment but agree that the deficit MUST come down and soon.

@Juan - The deficit is the money the gov't borrows when they don't have enough other revenue to meet expenses. 40% of the money the Feds borrow in a year comes the government lending to itself. If the government just prints the money to pay the debt, we get inflation. If the government just taxes individuals to raise the money to pay back the debt, Consumption and Investment spending will go down.

Nov. 18 2012 05:32 PM
John A.

What you say is correct. Politicians seldom talk about problems directly - that's where the deficit talk disappears to, and Energy reform too for that matter.

Nov. 16 2012 02:15 PM
Juan M from Mount Vernon, NY

It seems to me that worrying about the absolute amount of debt we have makes no sense -- it is an arbitrary number determined by the size of the economy, the budget and inflation. The only context that it does make sense is looking at the ability to repay -- in other words, the deficit. Does this make sense, and if so, why do I never hear anyone make this point?

Nov. 16 2012 01:57 PM
EJ from westchester

The irony of the fiscal cliff is that because Obama made no really concrete promises in his campaign, he has no concrete obligation.. He definitely has no 'mandate'. Whats to say he is not going to let the unemployment flatline until the next election cycle?

Nov. 16 2012 01:56 PM
Ken from UWS

What do your guests say to the contention that Republicans are manufacturing this deficit "crisis" to pressure Democrats to extend the Bush tax cuts for the wealthy and accept painful cuts to Social Security, Medicare, and Medicaid. Paul Krugman has said that, "The looming prospect of spending cuts and tax increases isn't a fiscal crisis. It is, instead, a political crisis brought on by the G.O.P.'s attempt to take the economy hostage."

Nov. 16 2012 01:49 PM
John A

Love that the republican party is giving up the no taxation platform. Hate that it's taking so long. Hate that they want tax reform - most experts say that will take over a year. Romney speaking of gifts for votes is a good start also, except that it misses completely the Republicans gift of nontaxation for the rich.

Nov. 16 2012 01:46 PM
afgan irakson from brooklyn

once you realize that Obama is a pro-choice,log cabin rebublican, everything becomes clear and understandable.

Nov. 16 2012 01:45 PM
EJ from westchester

The business world has been bracing for the fiscal cliff for almost a year... but somehow that memo missed everyone else? I guess that shows washington is in touch with general voters, but only when it wants to?

Nov. 16 2012 01:40 PM
AnneMarie Ciccarella

Great QUESTION, LL..... I just blogged about that... WHY wasn't this discussed in the run up to the election.

Nov. 16 2012 01:26 PM
AnneMarie Ciccarella from Long Island, NY

I was the in studio guest on your show about Pink Ribbons Inc. Today many medical research establishments have initiated a Social Media push to let our government know that sequestration is not the answer. While these cuts are across many programs, I can only speak to that which I have any understanding. Cuts in research funding are troubling many in the medical advocate/activist community. We are tweeting today using #SaveResearch to compel our representatives to resolve this issue before we all fall off the cliff. We need "cures not cuts" .... I know there are meetings taking place as you speak to avert this crisis. I just read that part of the tax cuts directly targets "charitable contributions" ... Speaking as an advocate, this amounts to research potentially taking a hit from both sides-both budgetary cuts and the proposed tax increases. Anxious to hear what David Wessel and Mattea Kramer have to say!

Nov. 16 2012 01:21 PM
John A

I've heard David speak twice already on this book tour - and - could you clear this up?
The US has to replace One Aircraft carrier every five years, or is it every Aircraft carrier every five years? Its a huge difference and the first case does sound absurdly wasteful.

Nov. 16 2012 11:20 AM

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