Counterparties: Cliff Notes

November 8, 2012

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The fiscal cliff (née taxmageddon) has been looming for months — yet, as Binyamin Appelbaum says, it never got any real traction during the campaign. But now that the campaign is over, the issue is everywhere. After all, if Congress doesn’t act, we’re headed straight for another recession, thanks to a mix of automatic spending cuts and expiring tax cuts. (For background, see our previous posts. The WSJ has a simple visualization of what’s in the fiscal cliff; Tracy Alloway flags a handy calendar, which includes when the debt limit will likely be reached).

It’s an old topic, but there are brand-new trial balloons! In a statement the NYT called  “conciliatory”, Speaker of the House John Boehner said his party would now be open to “new revenues” in exchange for entitlement cuts and/or tax reform. This may mean that Obama may be finally making progress in what Joshua Green calls the president’s long “battle for revenue”.

In the suddenly more pleasant world of post-election politicking there may even be something like common ground: Grep Ip and Peter Orszag both say that there might be short-term solutions which eases the economic pain of the fiscal cliff while giving Congress time to wrangle over the really hard budget decisions. (This is also known, in some circles, as “kicking the can down the road”.)

The CBO today released a broad guide to three basic debt-reduction scenarios, while the Center on Budget and Policy Priorities has another approach: aim a bit lower. Instead of obsessing over coming up with the “almost mythical” $4 trillion in cuts suggested by proposals like the Simpson-Bowles plan, why not cut half that and call it a day? A deficit reduction package that size, the CBPP’s Richard Kogan writes, would stabilize our debt over the next decade and buy crucial time to evaluate how to properly cut health care costs — a question we’re only beginning to answer.

Health care — Medicare and Medicaid but not social security — is, in fact, the biggest driver of our debt. As Aaron Carroll put it, “We don’t have a deficit problem, we have a health care spending problem”.  — Ryan McCarthy

On to today’s links:

Interesting But Hyperbolic
This is a “moment in which the racial and social hierarchy of America is upended forever” – David Simon

Good Points
“Today’s problem is unemployment. Tomorrow’s problem is the deficit” – David Wessel

The fiscal cliff can’t be a “tail risk” if everyone is worried about it – Sober Look

New Normal
Employment recovery and wage decline: in 2012, 33% of displaced workers took jobs that paid at least 20% less – Cleveland Fed

“The Answer” (Silicones), “My Bathroom Is A Private Kind of Place”, and other industrial showtunes – Fortune

Cliff Asness, clairvoyant – BI

Finite Resources
The universe only has a few billion years left to make stars – Wired

Probably Not
The average American “intuitively if not deliberately” understands the work of Reinhart and Rogoff – Quartz

Please stop freaking out about Professor Piger’s recession probability chart. Thanks. – Old Prof

Mourning Romney’s loss with a PAC of “successful, proven young people” at a midtown bar – Max Abelson

Discovering evidence of aliens might violate BBC editorial guidelines – Telegraph


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