A Few Words on the Edge of the Fiscal Cliff

With the fiscal cliff fast approaching, let's take a moment to reflect before plunging downward.

The 'fiscal cliff' is a not-at-all alarmist term for a set of spending cuts and tax increases that will go into effect at midnight, December 31st, if Congress doesn't act. The GOP is taking the opportunity to demand we deal with our long-run deficit problem RIGHT THIS INSTANT or they'll crash the economy just to be make a point - deficits, of course, are only a problem when a Democrat is in office.

Mr. Burns explains:

Most of the Very Serious People in media and politics have decreed that 'both sides' will have to offer 'painful concessions' - in other words, The Republicans will have to acquiese to certain tax increases and defense cuts, while the Democrats will have to allow for cuts in Social security and Medicare.

Here's the problem: asking for some spending cuts and revenue increases certainly makes sense in the long term, but with unemployment still doggedly around 8% what the country needs is more investment, not less.

Even more importantly, if you really believe that the deficit is a problem, Social Security and Medicare don't add to the debt at all. Both are funded through specially dedicated levies (or taxes) which are seperate from the budget as a whole. Social Security is estimated to start losing money in 2033, while Medicare is completely solvent up until 2024.  At that point, the programs do not 'go broke' - they simply start spending more money than they take in, and will require money from the general budget to keep going - like every other government program.

In other words - this is more or less a scam. Republicans hate entitlements so they want to get rid of them. The deficit is only an excuse; if the programs were free they'd still try to get rid of them.

The good news is that even as the GOP refuses to budge from their anti-tax orthodoxy,  we still have a month or so before things really start getting hairy. For that month the only real loser will be the stock market, but at least they can blame the Republicans.