Forum for Innovation

With the looming fiscal cliff, it sometimes feels like we’re all swimming in shadowed, murky waters. What is the fiscal cliff and what should we do about it? 

The fiscal cliff is a swift dose of austerity administered for a manufactured crisis.  Its toxic mix of simultaneous spending cuts and tax increases will contract the economy by 4% in calendar year 2013, leading to recession and unemployment at over 9%.  You can see a full breakdown in the infographic below the fold.  These measures will be felt gradually, but financial markets may not wait to pronounce judgment.  It’s a bad outcome of bad policy. 

What’s clear is that the fiscal cliff is a microcosm of much bigger challenges.  Current policies have placed us on what the CBO calls “the explosive path of federal debt.”  In twelve years’ time we’ll face the exhaustion of Medicare Part A followed by Social Security’s fall some ten years later.  Moreover, today’s fragile economy reflects a larger poverty of opportunity. 

What then shall we do?  First, do no harm.  The central virtues of a deficit deal must revolve around doing what is best for the American people—today and tomorrow.  

Second, we must put our financial house in order.  It’s not simply a matter of avoiding the fiscal cliff; we must remember the much larger cliffs ahead.  Whether we talk about taxes or spending, both sets of policies must be set on a stronger foundation.  

Third, let growth be the goal.  Politics may be able to sink an economy, but it takes the free enterprise system to save it.  That means restoring our economy to its full potential and beyond.  America’s energy abundance, for instance, represents some 1.3 million new jobs by 2020.  Yet at present, America’s economy is underperforming by nearly $1 trillion.  We can do better. 

We’ve leapt into a muddy current, thinking that we can play chicken with the cliff ahead and win.  We can’t, at least in the direction we’re swimming.  There is no avoiding the tough choices our economy faces.  As we look for ways out, we must keep in mind these basic facts and principles.

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Source: http://upload.wikimedia.org/wikipedia/en/2/2e/Fiscal_Tightening_Infographic.png