The Concord Coalition has just unveiled a new paper, authored by Edmund Andrews, Joe Minarik, and Diane Lim Rodgers, called "Not Just Their Problem: The Euro Debt Crisis and U.S. Fiscal Policy," shedding some light on our fiscal outlook in an international context.
In evaluating the fiscal cliff, it is interesting to see how it compares to past cases where the federal government has rapidly reduced deficits. The OMB has historical data on deficits as a percent of GDP going back to 1930, so we can evaluate based on this time period. For simplicity's sake, we will compare "cliffs" by the change in deficits from the previous year.
The New York Times has an article today entitled "In Washington’s New Mood of Austerity, Legislating Turns Into a Zero-Sum Game," detailing how the recent surface transportation/student loan/flood insurance bill involved some pay-fors that had avoided the budget axe in the past. As the author Jonathan Weisman describes it:
Today, the IMF released the concluding statement of its Article IV Consultation, calling for the U.S. to pass a deficit reduction plan quickly but phase in implementation to avoid unduly harming the recovery. Their economic forecast shows a continued slow recovery ahead--even with much of the fiscal cliff averted--as real GDP growth is projected to average 2.0 and 2.3 percent in 2012 and 2013, respectively.
Steep budget cuts are linked to recession and higher unemployment in Europe, argue several commentators (see here for example). Are they right? Certainly, some countries have struggled economically when reducing deficits before their economies have made a recovery.
UPDATE: This blog has been updated to include CBO's brief about the fiscal cliff.