Remember the unemployment rate?
Even with a positive resolution of the fiscal cliff (and you can fill in 'positive' any way you like) awaiting us on the other side is the still highly elevated unemployment rate.
How high and for how long?
The figure below shows a bunch of forecasts of the jobless rate over the next few years, along with the CBO estimate of the full employment unemployment rate as a reference point.
The most pessimistic trend is the other CBO line, as that assumes we go over and stay over the cliff. The most optimistic is Moody's.com. Their model foresees faster growth in coming years than the others, in part because they believe the rate of household formation (and the related higher investment and consumption) will soon accelerate after being suppressed by the housing bust and Great Recession.
Goldman Sachs researchers expect real GDP growth to be about 3 percent in 2014-15 (Moody's expects about 4 percent). My own forecast (JB) is similar to GS but a bit more pessimistic because I assume the labor force participation grows more quickly as the economy recovers, putting upward pressure on the jobless rate.
At any rate, relative to full employment, we're looking at elevated unemployment for years to come. Of course, were we to tack from austerity economics to the Keynesian variety, we could do better than this. As it stands, virtually every cliff outcome invokes considerable fiscal contraction next year; a reasonable guess, assuming an agreement, is between 1-1.5 percent of GDP, with the loss of the payroll tax cut alone accounting for most of that.
That's what's waiting for us once we get over the cliff. In fact, it's been here all along.
Sources: CBO, Goldman Sachs, Moody's.com, JB Inc.