It’s somewhat of a myth that the US is about to fall off a fiscal cliff. While the concerns are thoughtful, they are slightly inaccurate. It’s important to understand that what is really about to happen is not that the US will default on its debt (an impossibility unless we chose to do so), but rather that we are about to enter a stage where the private sector is starved of capital, as the public sector gobbles it all up.
This will result in perpetually low-growth, as the centralized and bureaucratized public sector will be unable to innovate in the same way that the more decentralized and specialized private sector can. This will create stagnant wage and job growth, and fewer productivity gains. It might even create significant inflation that acts as an additional retardant on growth.
But it will certainly mean that you will have a harder time getting a small business loan. And a harder time getting a home loan. And a harder time finding a job if you don’t live in the Beltway area.
So perhaps the more accurate thing to say is that we are about to fall off a growth cliff, rather than a fiscal cliff. And that growth cliff is created by fiscal mismanagement. While the difference might be somewhat semantic, it’s still important to express it precisely.