It is much easier to win an election than it is to redistribute wealth. Since any deal before the Fiscal Cliff deadline is unlikely to be truly effective over much more than short term period, it is clear there is limited leverage in the deadline. Though we are dealing with economic issues facing the country, the real story is about political gains and losses. Thus there are two different dimensions here. One economic; jobs and growth. The other is political; using the Fiscal Cliff to get party control in Washington.
The Democrats have just emerged from a general election with a limited momentum they believe has some sort of mandate to drive a deal favorable to their agenda. The Republicans, having been humbled by a changing political demographic, are trying to walk a fine line between looking reasonable without alienating their only real constituency, a sort of Ayn Rand meritocracy which blends fundamentalism with general accounting.
Now the Democrats may believe the last election gives them the upper hand but that trade is over. And since Obama had a sort of non confrontational bargaining approach in his first administration, they are hard pressed to deliver before the deadline.
So the choice for both parties is clear. Go over the cliff. And indeed it may be the right decision for both. But since this battle is a political one and not economic, the winner will ultimately be the party with the greatest ability to play the outcome and not have the outcome play them. Going into that event the Democrats have Obama and the Republicans have nobody.
