The US federal budget has been chronically in deficit for most of my life, not to mention most of the century.
The national debt is bouncing up against a ceiling of 16.4 trillion, compared to a 2012 GDP of around 15 trillion. Each of the 117 million American households owes about $140,000. Median household net worth was over 100,000 before the real-estate bubble burst. Now it's about $67,000.
Krugman argues that we can grow our way out of debt and that scary talk of a trillion dollar deficit is just a tactic to frighten voters into abandoning welfare and social programs. We can continue to print money, short-changing China and domestic savers.
But, debt can't increase indefinitely without landing us in the same pickle as Greece or Argentina sooner or later. And there's no way to know in advance when later becomes now.
Obama is offering $1.3 trillion in revenue increase for $930 billion in spending cuts. The republicans might haggle this ratio down a bit, before a deal is struck. A big chunk of the cuts ($400 billion) fall on health care programs. Farm subsidies take a hit ($200 billion). And "non-defense discretionary spending" gets slaughtered. This obscurely named category includes things like infrastructure, research, disaster relief, education and the environment. Neither party seems ready to cut more than $100 billion or so from defense.
The fiscal cliff splits the cuts evenly defense and domestic spending. If you prefer butter to guns, that might be a better deal than a "grand bargain".
Far from an apocalyptic event, the fiscal cliff is a good start at what we need to do anyway. It accomplishes two wise but politically impossible things - spending cuts on defense and ending the Bush tax cuts. Fixing the collateral damage is going to be a lot easier that getting either of those items a-la-cart. Don't panic! If anything worthwhile gets cut, we can always bring it back.
So, I say, Fuck it! Let's go flying off the fiscal cliff.
