The Fiscal Cliff is Coming and it Doesn’t Exist

You may have heard recent talk about the “Fiscal Cliff”, and if you haven’t then trust me you will over the next few weeks. For those of you confused about what the fiscal cliff is don’t worry; everyone is confused by it and I'm about to tell you some things that might make it a bit less scary.  Essentially, over the next few months a lot of temporary laws in the United States are going to expire. These are laws which were brought in saying that taxes would be reduced for certain people for a number of years, or that certain government programmes would be guaranteed funding for a certain number of years. As the time limit on these all finish at roughly the same time that means that quite suddenly government spending will go down and taxes will rise. This has made people worry that the recession will start up again as suddenly a lot of money will be taken out of the economy. Trying to fix this is an even bigger problem as Republicans who control the House of Representatives want to cut spending and keep the tax cuts, whereas Democrats who control the Senate and the Presidency want to increase spending and get rid of the tax cuts. Either way this means increasing the deficit, which is the government’s debt.

I just put this here to give you

something to look at

This adds another problem into the mix as America has a law for something called the “deficit ceiling” which you can think of as being a bit like America’s maximum overdraft. Basically the American government can only borrow a certain amount of money and unless the politicians sort everything out soon they are going to both hit the ceiling and fall off the cliff, which I admit is a bit counter-intuitive. I also realise I have probably done a bad job of explaining all of this and you are probably more confused than ever, but don’t worry! Because none of it exists.

Think about it this way: an economy is all the things in a country. An economy is made up of the amount of hours people work, the amount of minerals it can mine, the amount of crops it can grow, the amount of cars it can make, the amount of factories making those cars, and so on and so forth. A country’s economy is all the real measurable stuff that is in that country. So what happens on the day America hits the fiscal cliff? Well it still has all the same number of people working the same hours, the same miles of roads and railways, the same tonnes of coal and iron in its hills, the same number of farms, the same number of factories. Surely the economy must be the same as it was the day before?

Nothing “real” has changed, all that has changed it that some economist in an office in Washington D.C. has had to subtract some number from some other numbers on a computer screen. The point I'm making is this: money isn't really real.

Money is a number plucked from thin air so that we can take all the actual things that exist and say “oh yes altogether this is worth x money” because it’s easier than saying “this is worth x chickens” or “x tonnes of coal”. It gives us a common unit to measure everything with. Money doesn't actually exist in the real world and it never has. “But” I hear you say “ I've got a wallet full of money!” and my reply is, no you don’t. What you have is a wallet full of pieces of paper saying “This is worth money” they aren't actually money, they just represent money.

Now I admit this is all complicated as hell but that is the problem. Money is a metaphysical concept, we interact with it on a daily basis, but it has no form so it is very hard to explain and rationalise. Money is a quite bit like God. The Christian God actually gives us an excellent metaphor for understanding the difference between cash and money as we’re on the subject. You know communion? It’s the part of a Christian church service where people eat bread and drink wine which (although the exact definition differs) is believed by the people receiving it to be imbued with the power of God. God is non physical and people can’t interact with God normally but the communion wafer and wine is God “made flesh”, made real so that believers can interact with him. Cash works the same way. When you buy something with cash you are communing with Money, that strange metaphysical entity that you can never really understand. Cash is the god of trade made paper.

The Ancient Greek alternative

to Ben Bernanke

“But everyone agrees money exists” you say “so money must be real!” Well I believe in God but I am going to have a hard time proving he exists to someone who doesn't believe in him. Likewise you are going to have a hell of hard time finding physical evidence for the existence of money and just because people believe in something doesn't make it true. Let’s keep with this religion theme by taking another metaphor. Say that with your new knowledge of the fiscal cliff you are sent back in time to Ancient Greece in the hope that the Greeks have some sort of solution that your modern mind hasn't considered. You meet a group of bearded worthies and explain the situation to them and their response is this: “Well clearly what you need to do is find the best ram in your city-state and sacrifice him to Hermes who is, as I'm sure you know, the god of trade. Also it would probably be a good idea once the sacrifice is over to feed its liver to this Barack Obama chap you mentioned.” Here in the distant future that is obviously ridiculous advice, but in ancient Greece where everyone believed in the power of Hermes it was the rational thing to do. We are now all worried about money breaking the economy because we all think that money is a thing that exists and can cause problems if we don’t respect it.

Now I can see that look on your face but don’t worry, I’m not going to crack into some crazy hippy rant and start quoting the lyrics to Imagine at you. In fact I join everyone else in hoping that the American political system fudges some compromise together which pleases almighty Money and saves the world from economic melt-down just a little bit longer. But, Dear Reader, I also want to make sure that as the news media goes crazy about Fiscal Cliff over the next few days you don’t worry yourself too much because none of the numbers you’re hearing are real, it’s all just someone’s imagination.

P.S. Fat Roland, who is one of the funniest people I know, has a twitter account called @Cliff_Fiscal that you should probably follow.