A big red dog explains the fiscal cliff

By Felix Salmon
December 12, 2012

The main problem with trying to explain the fiscal cliff, as I see it, is that people get far too caught up in the details — tax deductions, tax hikes, spending cuts, debt ceilings, and the like. Which are all important, but they’re not fundamentally what the austerity bomb is about. Rather, the reason that everybody’s worried about the effects of the fiscal cliff is simple Keynsian mathematics: if we cut spending and raise taxes, that means less economic activity — and a nasty recession, just when we can least afford it.

So this video is my attempt — with a big red dog, and Superman, and Batman — to get back to what really matters, and to try to underscore something quite interesting, which has been lost in the politics, which is that in terms of the deficit, both Obama and Boehner want something very similar. The deficit is big now — about $1.1 trillion — and they both want it to come down by roughly $200 billion, which is much less than what will happen automatically if they do nothing. In that case, the deficit would plunge by a disastrous $500 billion or so.

Deficits are a good thing, in terms of economic stimulus, and taking away a large deficit too quickly is a great way of causing a recession. I do understand that at some point deficits become a bad thing, especially if the bond markets decide that there’s a real question mark over whether all that borrowing can ever be repaid. But we’re not at that point yet. So it falls to Barack Obama and John Boehner to come together to prevent an entirely avoidable recession. They can do it, and they will do it. But we’ll have to suffer a lot of sturm und drang — not to mention gimmicky YouTube videos — before we get there.


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This was delightful.

Minor plot addendum: Clifford himself, despite his current imposing urgency, was actually/misguidedly borne out of a biological lab deep inside Batman’s own Batcave. (This, despite the fact that the joint Metropolis / Gotham City constitution forbades such Batcave experiments.) While Earth’s yellow sun does equip Superman — both today, and in that fateful summer of 2011 — to superhumanly declare such experiments baseless & meritless, the drama (?) is apparently ratcheted up when he modestly restrains such power. (Note: Earlier, turn-of-the-century Superman story arcs frequently featured such inspiring displays of executive/Kryptonian might. They were great reads!)

Posted by mr.jon.white | Report as abusive

Old conventional wisdom: deficits will kill us all

new conventional wisdom: cutting the deficit will kill us all

continuing beltway conventional wisdom: we must help the rich with lower taxes and defense spending and hurt the middle class by cutting Medicare, Medicaid and Social Security.

Posted by 3oosion | Report as abusive

Everyone is ignoring the well known and repeatedly demonstrated stimulative effects of tax increases on the wealthy. Whether the “fiscal cliff” raises taxes enough so that the tax increase stimulus counterbalances the spending cut anti-stimulus is hard to say, but the “cliff” effect is going to be much weaker than everyone is yammering about. If nothing else, the anti-stimulus is going to be weaker as well, since a lot of the “cliff” spending cuts are to defense spending which has a very small multiplier. In fact, the “fiscal cliff” may be just the medicine the economy needs.

Posted by spiffy76 | Report as abusive

You had me at Batman

Posted by Helvidius | Report as abusive

And you lost me with Boehner as Batman. How dare you sir!?

Posted by Helvidius | Report as abusive

I’m on Clifford’s side.

Posted by DCWright | Report as abusive

So… The federal government isn’t part of the general economy? Those lenders will forever be willing to pump $800B a year into the economy?

Perhaps a better model would be one of a “liquidity overhang”. The town is flooding, so we are pumping water uphill to a massive reservoir sitting above the town. If we stop, our toes will get wet. So we keep the pumps going at $800B a year… We’ve read of dams breaking elsewhere, of towns getting washed away in the flood, but we know that THIS dam is different and will never break. So we don’t even bother checking for cracks and keep pumping away.

How does that story end? One possibility is for Clifford to swoop in and drop a grenade on the pumps. Yes, our feet will get wet. The town will flood a bit. But we’ve survived that before and can survive it again.

Another possibility is to hope that the waters threatening the town will eventually recede, allowing us to begin draining the reservoir without flooding. But it is still raining…

We know the third possibility, we just don’t care to face it. Too scary, far worse than the first option.

Posted by TFF | Report as abusive