Goldman’s Alec Phillips has a new note out on the fiscal cliff, and we’ll just save you some time and cut right to the chase. Nothing is going to be addressed until after the election. And then probably most of the cuts and tax hikes will be pushed back, but nobody knows for sure.
That being said, there is one really great chart, which shows various possible outcomes, and the impact they would have on GDP.
Photo: Goldman Sachs
So as you can see, there’s the big dotted line that starts at the end of Q4 2012, which shows that if nothing happens, we get a hit of nearly 4% of GDP. Then there’s the Goldilocks blue line, in which everything is extended. The black line is their current assumption, which is something in the middle.
But the past part of the chart, really, is the demonstration that since the end of 2009, combined federal, state, and local fiscal policy has been negative in every single quarter. Only very briefly in 3 quarters in 2009 has government been net stimulative to the economy. Since then it’s been a negative force.
It’s well known by now that throughout the last few years — contra the stereotypes about the Obama administration — that it’s private, not public, employment that’s been the star. But you might not realise just how long now government fiscal policy has been a net drag.