Episode 83: Everything You Want to Know about the Fiscal Cliff

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What exactly is the fiscal cliff? We talk to Professor Barry Eichenberg to explain what we’re facing on January 1st 2013

The election is already old news as we find ourselves staring down the barrel of another fiscal gun. Or, as it’s being called, the fiscal cliff. To help explain what the fiscal cliff is, why it’s so dangerous and how we can prevent the country from toppling over the edge into another recession, we’re delighted to invite special guest Barry Eichengreen, economics and political science professor at the University of California, Berkeley.

The first thing Professor Eichengreen does is to explain that the idea of a “fiscal cliff” is a misnomer and that we’d be better off thinking about the situation as an impending “austerity bomb” of an unprecedented magnitude. Despite the recent WSJ article that suggests the so-called cliff is more hype than hazard, Professor Eichengreen is adamant that this is a real crisis, and we — the media, citizens and government alike — should be careful not to underestimate the danger we’re really facing.

That being said, the Professor went on to explain that we can solve this problem without radical surgery and without gutting federal programs that help young people, students of poor, or aid to the states. Instead all we need is expenditure restraint, more revenue through limited and growth-friendly changes to the tax code, and progress on the health care reform.

This does, however, require some form of compromise — something both Charley and Professor Eichengreen are not willing to count on, despite the President’s re-election. In the absence of a grand bargain, the Professor highlighted two other possible scenarios: 1) kicking the can down the road, and 2) a dangerous game of chicken. The first, we know Washington is capable of, and as for the second, who knows how that will end up.

What is clear is that all this uncertainty is bad for the economy as markets take a hit, and bad for businesses, big and small, that rely on clarity and a non-apocalyptic vision of the future.

Perhaps the most we can hope for is a series of short-term “hotfixes” such as carving out the defense cuts from the rest of the austerity measures, or passing another bill between now and December to repeal the original demand for across the board 8 percent spending cuts that was made alongside the debt ceiling agreement.

Tune in to hear the full interview with Professor Eichengreen.

To finish up, we give you our responses to the interview and Charley talks a little about the President’s first post-election press conference where he looked like a man with a plan.

Tell us what you think.

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Posted in: Podcast, Policy, Politics