The debate over the fiscal cliff in less than seven weeks has produced some amusing attempts to capture the moment through common cultural references National Journal reported last week that some Democrats in Congress believed that the deadline at the end of the year was mostly a media chimera, and that a delayed response would do no significant damage.
Economists rebutting this view recalled the old Warner Brothers Looney Tunes cartoons, where characters ran off cliffs and stood suspended in midair for a moment or two before plunging to their destruction.They warned that passing the year-end deadline would produce exactly the same kind of reaction in the economy -- that a momentary stall would pass immediately into a collapse.
I have a different entertainment image in mind when imagining the political class' approach to the fiscal cliff: Thelma and Louise. The two parties have any number of people chasing after them, trying to get them to act rationally, while the pair in the front seat lock hands and make a spectacular vault off the cliff at high speed. Unless leadership in both parties get the mandate for coexistence and cooperation voters communicated last week, we're likely to see the political equivalent of the film's end, minus the empowerment it symbolized as the car went over the cliff.
To extend the entertainment analogy even further, this standoff is like a Hollywood film trilogy – and only if we're lucky will we avoid a fourth installment. The issues involved were the exact same issues that confronted Congress and the White House at the end of 2010, after the midterm elections flipped the House to Republican control. Massive deficit spending combined with anemic growth had forced the US to extend the debt limit and to address the expiration dates of the Bush-era tax rates that had been in place for seven years or more. Instead of solving the problem, Republicans and Democrats could only agree to temporary measures that pushed the hard questions of spending and revenue choices off a few months.
The first summer sequel wound up an even more contentious affair as both parties eyed the upcoming presidential election, and added a new cliffhanger, pun intended: sequestration. The automatic cuts triggered were supposedly so bad that it would force Barack Obama, Harry Reid, and John Boehner to cut some sort of a deal after another big hike in the nation's debt limit, which came too late to avoid the first downgrade in American credit ratings in nearly a century. Despite warnings from Obama's own Secretary of Defense, Leon Panetta, of the danger to national security that sequestration produces, neither side budged -- and the Senate didn't even bother to propose its own budget for the third year in a row.
Finally, now we have the third installment of the series, where none of the problems have been solved, and where all of them converge. We still have the question of the Bush-era tax rates, expiring again after the two-year reprieve from 2010. Sequestration has been added to the mix, and we still have no budget from the Senate and yet another trillion-dollar deficit. On top of that, the credit ratings agencies may re-evaluate US credit downward again if Washington can't come up with a solution, which will make the borrowing that enables the deficit spending even more costly by driving deficits up faster.
Has our political class learned anything from the first two installments? Not so you'd notice. While Boehner has offered to return to the so-called "grand bargain" offered in a brief moment of hope in August 2011 that would have added $800 billion in new revenues, Obama has refused to offer a reasonable compromise. He gathered left-leaning business leaders Wednesday to pitch his proposal to demand twice as much in new revenue, while postponing any spending cuts and locking in current tax rates for middle-income earners.