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.
The 2012 Fiscal Summit presented by the Peter G. Peterson Foundation is today. Watch live here now and follow on Twitter with #FiscalSummit.
Speakers include former President Bill Clinton, Speaker of the House John Boehner, House Budget Committee Chair Paul Ryan, House Budget Committee Ranking Member Chris Van Hollen, Treasury Secretary Timothy Geithner, Senator Rob Portman, Travelers Companies, Inc. Chairman and CEO Jay Fishman, and former Senator and Fiscal Commission Co-Chair Alan Simpson.
The news that Britain has entered into a double-dip recession touched off a fierce debate last week over the role of austerity in the country's downturn.