If you regularly read or watch the news, especially on financial TV, you will undoubtedly have more than your fill of the term “fiscal cliff” over these last few weeks of the year. That we have to hear it at all is a tribute to our feckless legislators, who have shown true political cowardice in failing to deal with the country’s burgeoning debt problems.
Earlier this year, faced with the task of making at least a dent in our trillion-plus dollar annual deficit and the resultant growing debt, Congress punted. Admitting their inability to craft even the beginnings of an agreement, our leaders scheduled “the sequester” for yearend, such a “horrible of horribles” that no legislator would dare let it unfold. Supposedly with that deadline for across-the-board budget cuts scheduled for December 31, even mildly enlightened lawmakers would certainly forge an agreement before doomsday. Now that we’re less than 40 days from the self-imposed deadline, with no progress made and the holidays complicating schedules, the chances of any substantive agreement range from slim to none. The best we can reasonably expect is a sketchy outline of actions that will be negotiated in 2013 in return for deferral of the sequester for a few months. At the same time, some “split-the-baby” compromise on expiring tax breaks might buy time for the promise of a more serious examination of comprehensive tax reform.
Or perhaps not! In which case, we will tumble over the cliff. If we do suffer that perilous fall, economists have forecast various impacts ranging from about a 1% to 4% decrease in 2013’s GDP. With GDP forecasts clustering around 2% for the year–apart from the cliff–any appreciable impact may well push the economy into another recession. On Wednesday of this week, Fed Chairman Bernanke added his voice, warning that failing to deal with the cliff would “topple” the economy back into recession.
In discussing possible outcomes, most commentators talk about “solving” the fiscal cliff. One can only talk about “solution” in the context of preventing all its consequences from hitting in the same time period. In a static analysis, every dollar of tax forgiveness that continues past its deadline is another dollar of deficit and cumulative debt. Every dollar that is sequestered out of government expenses may cut the deficit, but also cuts GDP. By spending more than we have earned for about three decades, we’ve painted ourselves into a corner from which there is no complete escape. All extrication actions have negative consequences.
We are faced with the unpleasant choice between accepting economic pain today or deferring some of that pain with the probable cost of even greater pain tomorrow. Given the political reality that candidates are rarely elected by promising pain today and a possibly better tomorrow, we can count on our dysfunctional Congress to kick the can as far down the road as possible. If they succeed, they may be retired before the consequences of their cowardice are fully realized.
Unfortunately, past delays may have already pushed the economy to a day of reckoning. Harvard economics professor Martin Feldstein said recently that the U.S. may fall into recession even if the worst effects of the fiscal cliff are deferred. Should Congress go all out to avoid immediate negative consequences to the economy, however, deficit and debt prospects will suffer. The major bond rating agencies have already warned that the US’s debt rating will take another hit if we fail to take meaningful action to control our deficits and debt.
There is no “solution.” We as a populace, through our legislators, have to decide how and when we want to square our books. We have lived and spent beyond our means for years, and our bills are coming due. Every one of us should be lobbying our legislators to act like statesmen and to make sure that we don’t leave a legacy of excessive debt to our grandchildren and their grandchildren.
Tom’s Plea To His Legislators
The following is a letter Tom sent out today to his Arizona legislators: Senator John McCain (R), Senator-elect Jeff Flake (R) and Representative Ron Barber (D). He urges you to make your voices heard in your own constituencies.
For years I have written and spoken about the dangers arising from our politicians’ unwillingness even to approach a balanced budget. The consequences of that negligence are becoming increasingly manifest with the most immediate of which, the fiscal cliff, only weeks away.
I am enclosing my most recent blog entry encouraging readers on our own site, plus those of other sites which regularly pick up my work, to lobby their legislators to act like statesmen instead of ideological vote solicitors in addressing the many questions related to our deficits and debt.
I am a constituent who cares deeply about the condition of the country that we will leave to subsequent generations. I implore you to act with a conscience that treats the rights of generations ahead equally to those of today’s voters. Please work in the upcoming years to change the venal image of Congress. Make us proud of legislative bodies that work toward long-term positive outcomes rather than ideological victories before the next election.