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So a friend of mine who's a political scientist,

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he told me several months ago

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exactly what this month would be like.

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He said, you know, there's this fiscal cliff coming,

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it's going to come at the beginning of 2013.

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Both parties absolutely need to resolve it,

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but neither party wants to be seen as the first to resolve it.

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Neither party has any incentive to solve it a second before it's due,

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so he said, December, you're just going to see lots of

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angry negotiations, negotiations breaking apart,

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reports of phone calls that aren't going well,

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people saying nothing's happening at all,

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and then sometime around Christmas or New Year's,

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we're going to hear, "Okay, they resolved everything."

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He told me that a few months ago. He said he's 98 percent positive they're going to resolve it,

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and I got an email from him today saying, all right,

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we're basically on track, but now I'm 80 percent positive

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that they're going to resolve it.

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And it made me think. I love studying

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these moments in American history

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when there was this frenzy of partisan anger,

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that the economy was on the verge of total collapse.

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The most famous early battle was Alexander Hamilton

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and Thomas Jefferson over what the dollar would be

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and how it would be backed up, with Alexander Hamilton

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saying, "We need a central bank, the First Bank of the United States,

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or else the dollar will have no value.

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This economy won't work,"

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and Thomas Jefferson saying, "The people won't trust that.

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They just fought off a king. They're not going to accept some central authority."

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This battle defined the first 150 years of the U.S. economy,

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and at every moment, different partisans saying,

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"Oh my God, the economy's about to collapse,"

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and the rest of us just going about, spending our bucks

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on whatever it is we wanted to buy.

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To give you a quick primer on where we are,

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a quick refresher on where we are.

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So the fiscal cliff, I was told

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that that's too partisan a thing to say,

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although I can't remember which party it's supporting or attacking.

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People say we should call it the fiscal slope,

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or we should call it an austerity crisis,

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but then other people say, no, that's even more partisan.

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So I just call it the self-imposed, self-destructive

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arbitrary deadline about resolving an inevitable problem.

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And this is what the inevitable problem looks like.

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So this is a projection of U.S. debt as a percentage

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of our overall economy, of GDP.

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The light blue dotted line represents

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the Congressional Budget Office's best guess

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of what will happen if Congress really doesn't do anything,

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and as you can see, sometime around 2027,

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we reach Greek levels of debt,

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somewhere around 130 percent of GDP,

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which tells you that some time in the next 20 years,

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if Congress does absolutely nothing,

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we're going to hit a moment where the world's investors,

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the world's bond buyers, are going to say,

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"We don't trust America anymore. We're not going to lend them any money,

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except at really high interest rates."

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And at that moment our economy collapses.

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But remember, Greece is there today.

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We're there in 20 years. We have lots and lots of time

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to avoid that crisis,

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and the fiscal cliff was just one more attempt

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at trying to force the two sides to resolve the crisis.

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Here's another way to look at exactly the same problem.

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The dark blue line is how much the government spends.

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The light blue line is how much the government gets in.

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And as you can see, for most of recent history,

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except for a brief period, we have consistently spent

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more than we take in. Thus the national debt.

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But as you can also see, projected going forward,

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the gap widens a bit and raises a bit,

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and this graph is only through 2021.

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It gets really, really ugly out towards 2030.

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And this graph sort of sums up what the problem is.

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The Democrats, they say, well, this isn't a big deal.

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We can just raise taxes a bit and close that gap,

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especially if we raise taxes on the rich.

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The Republicans say, hey, no, no, we've got a better idea.

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Why don't we lower both lines?

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Why don't we lower government spending and lower government taxes,

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and then we'll be on an even more favorable

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long-term deficit trajectory?

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And behind this powerful disagreement between

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how to close that gap,

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there's the worst kind of cynical party politics,

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the worst kind of insider baseball, lobbying, all of that stuff,

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but there's also this powerfully interesting,

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respectful disagreement between

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two fundamentally different economic philosophies.

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And I like to think, when I picture how Republicans

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see the economy, what I picture is just some amazingly

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well-engineered machine, some perfect machine.

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Unfortunately, I picture it made in Germany or Japan,

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but this amazing machine that's constantly scouring

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every bit of human endeavor and taking resources,

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money, labor, capital, machinery,

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away from the least productive parts and towards the more productive parts,

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and while this might cause temporary dislocation,

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what it does is it builds up the more productive areas

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and lets the less productive areas fade away and die,

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and as a result the whole system is so much more efficient,

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so much richer for everybody.

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And this view generally believes that there is a role for government,

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a small role, to set the rules so people aren't lying

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and cheating and hurting each other,

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maybe, you know, have a police force and a fire department

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and an army, but to have a very limited reach

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into the mechanisms of this machinery.

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And when I picture how Democrats and Democratic-leaning

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economists picture this economy,

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most Democratic economists are, you know, they're capitalists,

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they believe, yes, that's a good system a lot of the time.

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It's good to let markets move resources to their more productive use.

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But that system has tons of problems.

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Wealth piles up in the wrong places.

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Wealth is ripped away from people who shouldn't be called unproductive.

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That's not going to create an equitable, fair society.

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That machine doesn't care about the environment,

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about racism, about all these issues

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that make this life worse for all of us,

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and so the government does have a role to take resources

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from more productive uses, or from richer sources,

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and give them to other sources.

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And when you think about the economy through these two different lenses,

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you understand why this crisis is so hard to solve,

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because the worse the crisis gets, the higher the stakes are,

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the more each side thinks they know the answer

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and the other side is just going to ruin everything.

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And I can get really despairing. I've spent a lot

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of the last few years really depressed about this,

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until this year, I learned something that

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I felt really excited about. I feel like it's really good news,

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and it's so shocking, I don't like saying it, because I think

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people won't believe me.

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But here's what I learned.

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The American people, taken as a whole,

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when it comes to these issues, to fiscal issues,

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are moderate, pragmatic centrists.

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And I know that's hard to believe, that the American people

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are moderate, pragmatic centrists.

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But let me explain what I'm thinking.

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When you look at how the federal government spends money,

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so this is the battle right here,

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55 percent, more than half, is on Social Security,

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Medicare, Medicaid, a few other health programs,

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20 percent defense, 19 percent discretionary,

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and six percent interest.

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So when we're talking about cutting government spending,

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this is the pie we're talking about,

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and Americans overwhelmingly, and it doesn't matter

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what party they're in, overwhelmingly like

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that big 55 percent chunk.

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They like Social Security. They like Medicare.

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They even like Medicaid, even though that goes to the poor and indigent,

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which you might think would have less support.

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And they do not want it fundamentally touched,

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although the American people are remarkably comfortable,

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and Democrats roughly equal to Republicans,

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with some minor tweaks to make the system more stable.

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Social Security is fairly easy to fix.

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The rumors of its demise are always greatly exaggerated.

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So gradually raise Social Security retirement age,

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maybe only on people not yet born.

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Americans are about 50/50,

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whether they're Democrats or Republicans.

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Reduce Medicare for very wealthy seniors,

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seniors who make a lot of money. Don't even eliminate it. Just reduce it.

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People generally are comfortable with it, Democrats and Republicans.

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Raise medical health care contributions?

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Everyone hates that equally, but Republicans

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and Democrats hate that together.

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And so what this tells me is, when you look at

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the discussion of how to resolve our fiscal problems,

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we are not a nation that's powerfully divided on the major, major issue.

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We're comfortable with it needing some tweaks, but we want to keep it.

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We're not open to a discussion of eliminating it.

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Now there is one issue that is hyper-partisan,

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and where there is one party that is just spend, spend, spend,

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we don't care, spend some more,

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and that of course is Republicans

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when it comes to military defense spending.

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They way outweigh Democrats.

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The vast majority want to protect military defense spending.

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That's 20 percent of the budget,

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and that presents a more difficult issue.

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I should also note that the [discretionary] spending,

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which is about 19 percent of the budget,

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that is Democratic and Republican issues,

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so you do have welfare, food stamps, other programs

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that tend to be popular among Democrats,

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but you also have the farm bill and all sorts of Department of Interior

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inducements for oil drilling and other things,

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which tend to be popular among Republicans.

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Now when it comes to taxes, there is more disagreement.

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That's a more partisan area.

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You have Democrats overwhelmingly supportive

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of raising the income tax on people who make 250,000 dollars a year,

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Republicans sort of against it, although if you break it out by income,

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Republicans who make less than 75,000 dollars a year like this idea.

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So basically Republicans who make more than 250,000 dollars a year don't want to be taxed.

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Raising taxes on investment income, you also see

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about two thirds of Democrats but only one third of Republicans

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are comfortable with that idea.

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This brings up a really important point, which is that

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we tend in this country to talk about Democrats

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and Republicans and think there's this little group

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over there called independents that's, what, two percent?

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If you add Democrats, you add Republicans,

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you've got the American people.

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But that is not the case at all.

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And it has not been the case for most of modern American history.

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Roughly a third of Americans say that they are Democrats.

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Around a quarter say that they are Republicans.

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A tiny little sliver call themselves libertarians, or socialists,

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or some other small third party,

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and the largest block, 40 percent, say they're independents.

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So most Americans are not partisan,

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and most of the people in the independent camp

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fall somewhere in between, so even though we have

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tremendous overlap between the views on these fiscal issues

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of Democrats and Republicans,

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we have even more overlap when you add in the independents.

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Now we get to fight about all sorts of other issues.

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We get to hate each other on gun control

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and abortion and the environment,

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but on these fiscal issues, these important fiscal issues,

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we just are not anywhere nearly as divided as people say.

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And in fact, there's this other group of people

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who are not as divided as people might think,

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and that group is economists.

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I talk to a lot of economists, and back in the '70s

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and '80s it was ugly being an economist.

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You were in what they called the saltwater camp,

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meaning Harvard, Princeton, MIT, Stanford, Berkeley,

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or you were in the freshwater camp, University of Chicago,

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University of Rochester.

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You were a free market capitalist economist

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or you were a Keynesian liberal economist,

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and these people didn't go to each other's weddings,

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they snubbed each other at conferences.

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It's still ugly to this day, but in my experience,

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it is really, really hard to find an economist under 40

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who still has that kind of way of seeing the world.

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The vast majority of economists -- it is so uncool

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to call yourself an ideologue of either camp.

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The phrase that you want, if you're a graduate student

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or a postdoc or you're a professor,

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a 38-year-old economics professor, is, "I'm an empiricist.

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I go by the data."

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And the data is very clear.

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None of these major theories have been completely successful.

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The 20th century, the last hundred years,

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is riddled with disastrous examples

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of times that one school or the other tried to explain

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the past or predict the future

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and just did an awful, awful job,

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so the economics profession has acquired some degree of modesty.

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They still are an awfully arrogant group of people, I will assure you,

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but they're now arrogant about their impartiality,

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and they, too, see a tremendous range of potential outcomes.

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And this nonpartisanship is something that exists,

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that has existed in secret

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in America for years and years and years.

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I've spent a lot of the fall talking to the three major

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organizations that survey American political attitudes:

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Pew Research,

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the University of Chicago's National Opinion Research Center,

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and the most important but the least known

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is the American National Election Studies group

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that is the world's longest, most respected poll of political attitudes.

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They've been doing it since 1948,

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and what they show consistently throughout

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is that it's almost impossible to find Americans

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who are consistent ideologically,

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who consistently support, "No we mustn't tax,

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and we must limit the size of government,"

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or, "No, we must encourage government to play a larger role

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in redistribution and correcting the ills of capitalism."

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Those groups are very, very small.

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The vast majority of people, they pick and choose,

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they see compromise and they change over time

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when they hear a better argument or a worse argument.

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And that part of it has not changed.

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What has changed is how people respond to vague questions.

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If you ask people vague questions, like,

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"Do you think there should be more government or less government?"

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"Do you think government should" — especially if you use loaded language --

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"Do you think the government should provide handouts?"

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Or, "Do you think the government should redistribute?"

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Then you can see radical partisan change.

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But when you get specific, when you actually ask

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about the actual taxing and spending issues under consideration,

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people are remarkably centrist,

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they're remarkably open to compromise.

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So what we have, then, when you think about the fiscal cliff,

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don't think of it as the American people fundamentally

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can't stand each other on these issues

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and that we must be ripped apart

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into two separate warring nations.

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Think of it as a tiny, tiny number of ancient economists

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and misrepresentative ideologues have captured the process.

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And they've captured the process through familiar ways,

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through a primary system which encourages

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that small group of people's voices,

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because that small group of people,

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the people who answer all yeses or all noes

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on those ideological questions,

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they might be small but every one of them has a blog,

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every one of them has been on Fox or MSNBC in the last week.

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Every one of them becomes a louder and louder voice,

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but they don't represent us.

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They don't represent what our views are.

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And that gets me back to the dollar,

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and it gets me back to reminding myself that

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we know this experience.

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We know what it's like

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to have these people on TV, in Congress,

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yelling about how the end of the world is coming

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if we don't adopt their view completely,

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because it's happened about the dollar

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ever since there's been a dollar.

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We had the battle between Jefferson and Hamilton.

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In 1913, we had this ugly battle over the Federal Reserve,

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when it was created, with vicious, angry arguments

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over how it would be constituted,

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and a general agreement that the way it was constituted

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was the worst possible compromise,

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a compromise guaranteed to destroy this valuable thing,

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this dollar, but then everyone agreeing, okay,

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so long as we're on the gold standard, it should be okay.

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The Fed can't mess it up so badly.

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But then we got off the gold standard for individuals

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during the Depression and we got off the gold standard

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as a source of international currency coordination

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during Richard Nixon's presidency.

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Each of those times, we were on the verge of complete collapse.

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And nothing happened at all.

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Throughout it all, the dollar has been

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one of the most long-standing,

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stable, reasonable currencies,

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and we all use it every single day,

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no matter what the people screaming about tell us,

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no matter how scared we're supposed to be.

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And this long-term fiscal picture that we're in right now,

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I think what is most maddening about it is,

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if Congress were simply able

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to show not that they agree with each other,

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not that they're able to come up with the best possible compromise,

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but that they are able to just begin the process

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towards compromise, we all instantly are better off.

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The fear is that the world is watching.

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The fear is that the longer we delay any solution,

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the more the world will look to the U.S.

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not as the bedrock of stability in the global economy,

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but as a place that can't resolve its own fights,

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and the longer we put that off, the more we make the world nervous,

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the higher interest rates are going to be,

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the quicker we're going to have to face a day

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of horrible calamity.

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And so just the act of compromise itself,

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and sustained, real compromise,

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would give us even more time,

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would allow both sides even longer to spread out the pain

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and reach even more compromise down the road.

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So I'm in the media. I feel like my job to make this happen

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is to help foster the things that seem to lead to compromise,

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to not talk about this in those vague and scary terms

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that do polarize us,

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but to just talk about it like what it is,

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not an existential crisis,

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not some battle between two fundamentally different religious views,

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but a math problem, a really solvable math problem,

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one where we're not all going to get what we want

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and one where, you know, there's going to be a little pain to spread around.

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But the more we address it as a practical concern,

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the sooner we can resolve it,

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and the more time we have to resolve it, paradoxically.

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Thank you. (Applause)