In reality, nothing bad is likely to happen at the beginning of January. The automatic tax hikes and spending cuts will occur cumulatively over the course of an entire year. The Obama administration can delay implementing even the first dollar of the austerity, and even if we do have a few weeks of higher taxes and spending cuts, it can be retroactively canceled out once a deal is completed. The metaphor of a “cliff,” in which one step over goes all the way to the bottom, is utterly misguided.
What will change on January 1 is bargaining leverage. Once the Bush tax cuts have expired, then the two parties can much more easily agree on a deal to pass a big tax cut and substitute cuts to Social Security and Medicare for the scheduled cuts to discretionary spending. As a side benefit, the dreaded Grover Norquist tax pledge will be technically moot. Liberals such as me like this idea a lot.
Politics aside, there's no serious argument to be made against the idea of sending all the members of Congress home and then negotiating on budget matters under the new baseline. From the new baseline, all Democrats and Republicans disagree about is how much to cut taxes by and how much to increase spending. Those are issues where compromise can be found. It'll take some negotiating, but it can get done fairly easily.
So maybe the first cliff—the one coming in January—is the lesser of two evils. It just might achieve what white papers and impassioned pleas have so far failed to do: scare some sense into our legislators.
Personally, I'm all for letting the sequester take effect if it actually reduces the money going to the military-industrial and security-industrial complexes. Cynic that I am, however, I'm sure our elected representatives will find a way to make sure the war and internal spy lobbies don't lose a dime. I'm in favor of spending cuts if the budgets for Defense and Homeland Security get cut.