Starbucks’ grande confusion over the fiscal cliff

December 27, 2012

Starbucks CEO Howard Schultz has become the latest corporate executive to take to a soapbox on the "fiscal cliff" as part of Maya MacGuineas's Fix the Debt coalition. His open letter asking his baristas to write "Come together" on their D.C. customers' cups has launched a thousand quips on Twitter. But beneath Schultz's anodyne message lies a central confusion as to what the fiscal cliff is about in the first place. 


(Source: AFP/Getty Images)

"As many of you know, our elected officials in Washington D.C. have been unable to come together and compromise to solve the tremendously important, time-sensitive issue to fix the national debt. You can learn more about this impending crisis at www.fixthedebt.org," Schultz wrote in an open letter to his employees.

Reading this alone, you'd get the impression that the real, time-sensitive danger that we're facing is a debt crisis. It isn't. The "impending crisis" that Schultz is referring to is just the opposite, as Wonkblog has explained in our admittedly futile campaign to rebrand the fiscal cliff as an "austerity crisis"—a sharp, sudden fiscal contraction that requires some measure of stimulus (be it tax cuts or spending) to ward off a recession. Congress created it in order to force action on our perceived debt crisis, which is why the deficit will go down if we go over the fiscal cliff. 

Washington officials understand this: That's why Secretary Tim Geithner explained that going over the fiscal cliff would actually buy us more time before we hit the debt ceiling. But in the broader debate, our long-term structural deficit and our short-term austerity crisis have become conflated and confused with one another, as both party leaders and outside groups like Fix the Debt have been gunning for a "grand bargain" that included historic, sweeping reforms that went well beyond the bounds of the fiscal cliff. 

Now that such a big deal is all impossible at this point, legislators are now tasked with coming up with a short-term patch to blunt some of the most jarring effects of upfront austerity. It's entirely possible to do so and strike a "small deal" that avoids most of the fiscal cliff's immediate fallout without solving our long-term structural deficit. That could carry its own risks, for sure, but it would certainly be better for the near-term economy than going over the cliff in its entirety and doing nothing at all.  

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Dylan Matthews | December 27, 2012