And We're Falling Off Which Cliff?

So what about that Fiscal Cliff?

If your anything like the millions of Americans who listen to public radio or can’t seem to tear themselves away from the television, you’ve probably heard the phrase “fiscal cliff” more than a few times, sometimes praised and frequently condemned. But what exactly is the fiscal cliff?

Projected budget analysis graph. Alternate scenario is
with extension of tax cuts and without program cuts.

                The phrase comes from the shape of the graph which shows the government’s net revenue vs. time. The current prediction, with the end of the Bush tax cuts, a planned increase in tax rates, and the beginning of the program reductions detailed in the Budget Control Act of 2011. These reductions are intended to be widely applied but not to cut too deep, with shallow cuts to nearly every department (a few are immune; veterans affairs, medicare, etc.)

                There is much discussion involving whether or not reaching the fiscal cliff is in fact the safest route for the country. This debate stems from the division on economic theory found in Congress, commonly understood through something called Keynesian theory. John Keynes was an economist who in 1936 published The General Theory of Employment, Interest, and Money. Keynesians argue that in times of recession the government should increase spending, taking a deficit in order to stimulate the economy. More projects, more employment, and more benefits will then push the economy more quickly into surplus.

                Non-Keynesian economists argue that recessions are a time for the government to decrease spending. In a more common sense argument, they argue that the government is the structural backbone of the economy, and in lean times should tighten its belt to control the damage of the recession.

                The true right answer to this question is probably a combination of the two. However, which one will be applied in the coming months and years to America’s economy remains to be seen. Democrats, who favor Keynesianism, currently control both the Senate and the White House, while the non-Keynesian Republicans control the House.

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Sources: http://www.econlib.org/library/Enc/KeynesianEconomics.html

http://www.washingtonpost.com/politics/gop-republicans-dig-in-on-fiscal-cliff-talks/2012/12/13/019a212e-4537-11e2-8061-253bccfc7532_story.html