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?
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| 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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