Abrupt Transition

One day it was all about momentum and battleground states (but like dominoes they fell for Obama), abruptly we are supposed to be terrified—by the Fiscal Cliff. So just what is it—and how big?

This Ogre has four components. Those, and the estimated of the impact of each, are shown in the following tabulation:

Fiscal Cliff Components and impacts, in $ bill. Bush tax cut roll-back 280 Payroll tax cut roll-backs 125 Emergency unemployment benefit termination 40 Budget Control Act spending cut mandates 98 Total Impact 543 As percent of GDP 3.4

The impact estimates come from the Wall Street Journal (May 16, 2012) citing J.P. Morgan economist Michael Feroli. In current journalistic rounding, I find some putting it at anywhere between $560 to $600 billion. Whatever. The total amounts to 3.4 percent of GDP, and one way to view that is to apply it to one’s own personal income. If that income is, say $45,000, a 3.4 percent cut would translate to about $129 per month. Okay. Ouch. But a fiscal cliff it is not.

Nor is it likely to take place as currently projected. What the abrupt transition from Election Hype to Fiscal Cliff Hype indicates, however, is that the media exist by promoting great clouds of anxiety. We must seamlessly move from one to another. Therefore, predictably…

But as the election itself refreshingly revealed, the people collectively have some sense. I say that after every national election whether the people I supported win or lose. Therefore the Fiscal Cliff will not cause a collective epileptic fit—except among the pundits.

Nostalgia. Not.

Having an expansive sense of time—thus remembering the past and looking far ahead—produces sobriety, understanding...and also disgust. Here I bring a graphic that shows at a glance just how effectively we’ve always managed to manage our financial sector. The graphic looks back over two hundred years, dividing the time into decades. Bars show decades in which a major financial melt-down took place, and its date replaces the decade’s number. Thus in the 1810s there was the major crisis of 1819. For the more recent events I’m also showing the name we’ve come to attach to the troubles, beginning with the Panic of 1907. In every one of these cases, massive bank failures have taken place. Here is the image:

It was my good fortune to have arrived in the United States in the wide grey period of the twentieth century (getting here in 1951). By the time the S&L meltdown came we were safely in a home of our own. The first financial crisis that actually cost us like real money was the Great Recession. But as this history shows, it's difficult to escape one of these blue bars hurting you, sooner or later, unless your life is rather short.

What’s striking here is that, without serious interventions, such as those that began after the Great Depression, these crises occurred with a kind of regularity at roughly twenty-year intervals, about the time it takes for a generation to forget how bad things had once been. Hence deregulation, to permit easier gaming of the blessed Market, takes hold and produces the next Surprise!!!