Opinion

The Edgy Optimist

The bright side of the fiscal cliff

By Zachary Karabell
December 28, 2012

As 2012 sputters to a close, it wraps up with a yawning gap between widespread economic pessimism and the actual state of economic affairs.

Though consumer sentiment rebounded in the fall, it fell in December, amid relentless coverage of the impending fiscal cliff. Holiday spending was muted. Businesses, meanwhile, cite the unresolved negotiations in Washington as evidence of continued uncertainty and many have put new spending, hiring or investment on hold. The media counts the days (and on some cable news channels, the minutes and the seconds) till we descend the fiscal cliff – adding to the general agitation.

Yet, every indicator of American economic activity has been strengthening. Stocks are up between 8 percent and 14 percent in 2012, depending on the index. Gross domestic product is increasing more than 2 percent a year; unemployment has fallen below 8 percent; wages are steady even as inflation is close to non-existent. Energy prices have declined, and home prices have increased. Debt burdens for American households are now at the lowest level in 29 years, giving the vast majority of consumers more flexibility in their spending

None of this, however, is evident if you listen to rhetoric in Washington, commentary on Wall Street and buzz in the news. Prognostications instead have us going off the fiscal cliff (completely or at best partly) and then, according to the Congressional Budget Office, descending into recession, higher unemployment and assorted other problems.

Something has to give. Either the powerful trends of forward movement will be dashed to bits at the bottom of the fiscal cliff or the consequences of that plunge will be far less dramatic than feared. You can make a case for either – but most are making the case for the negative.

That may come to pass, but it’s less likely than supposed.

First, even the CBO isn’t making an unequivocally negative case. If the government does nothing for the entirety of 2013 to offset the tax hikes and spending cuts mandated as of January 1, the CBO forecasts a recession of more than 1 percent in the first half of 2013 – but then 2 percent economic growth in the second half, accelerating even more in 2014. Over a decade, these measures will likely reduce deficits by as much as $10 trillion. We are so focused on the short-term pain of this cliff that we haven’t taken sufficient measure of the long-term benefits.

No, the indiscriminate cuts are not the best way to balance the budget. Unemployment benefits are not extended. So the tens of millions of people already stretched to the edge will see moderate tax increases. Needed government programs will also be trimmed.

Yet, as dysfunctional as Washington is, the chance of nothing being done to address this over the next months is close to zero. No Congress would likely welcome the reality of 12 million people with no income.

But much of the rest – including reducing unnecessary defense spending and raising taxes on the wealthy – are measures that need enacting and now look likely to be.

So here we have what is labeled a worst-case scenario – going over the cliff – that yields long-term advantages, with its worst features easily remedied.

And the larger backdrop? The U.S. economic system is in the middle of structural shift. Tens of millions of workers, mainly men, have lost competitive advantage to less-well-paid workers around the globe and also to robotics and information technology that has made many 20th -century  jobs unnecessary.

Whether the United States emerges on the other side of that shift as a prosperous, service-oriented, entrepreneurial, innovative society is the question of our time.

The pessimistic view says that without a currency based on something tangible, such as gold, and an economy based on something tangible, like manufacturing, the future is bleak. But this assumes that the only viable system is the one we had and that no possible alternatives could evolve.

Those views also put government in a central position as economic steward, which again was the case in the 20th century. Today’s federal government is hardly a hotbed of innovation and may matter less to our collective future than we assume.

The fiscal cliff, rather than dooming us, may reveal that government as an economic actor is less potent than all sides of the political spectrum assume. The economic future of America lies less with what Washington does or doesn’t do and more with what tens of millions of Americans, especially those under age 30, make of the future. With high education and literacy levels, as well as access to cutting-edge technology, the preponderance of these millions of Americans look to be crafting a set of new economies based on social media and software applications that are changing the way business is done and commerce is transacted.

Globally, Europe remains mired in what looks to be a multi-year contraction and stagnation. But it is no longer a tinderbox about to ignite a global meltdown. China has again confounded expectations by having neither a hard economic landing nor an especially notable soft one, and while its growth rate has slowed, it remains an economic juggernaut about to enter a prolonged phase of consumer-driven domestic growth. Sub-Saharan Africa has multiple pockets of strength, even as South Africa faces challenges. And Latin America continues to be a series of remarkable successes – from Brazil’s steady evolution to Chile and Peru’s resource-fueled expansion.

Perhaps the most surprising Western Hemisphere story is Mexico. No country was hit harder by the rise of China in the 1990s. Border cities now scarred by drug violence were touted in the 1990s as the factories of America, unleashed by the free-trade zone of the North American Free Trade Agreement. Those factories were decimated by cheaper alternatives in China.

But now that wages in China have risen so sharply, Mexico is again becoming a regional manufacturing power. It boasts a functional democracy, an invigorated new government led by a charismatic young president and a highly educated young population more interested in pragmatic advancement than the often rigid ideologies and corruptions that defined Mexico in the past.

And if Mexico thrives, along with undeniably potent, rich and creative Canada, the United States will be a clear beneficiary.

As these trends carry into 2013, the ratio of anxiety to hope, suffering to flourishing, haves to have-nots  will send just enough mixed signals to give glass-half-empty people reason to fret and glass-half-full people reason to celebrate. The leading indicators, big simple averages that they are, will continue to confound, eliding as they do the vast variety of experiences both in the United States and throughout the world. Yet more people will continue to emerge into the middle class globally in 2013 than any year in human history. There will be less disease, more caloric abundance and increased life spans even with the attendant risks of climate change.

And in the United States, the paradox of plenty will continue to bedevil easy generalizations, however easily those are made in politics, in the media and in heated arguments across the country. Americans are wealthier, healthier and more secure today than any group of people have been. Ever.

That may not make us happy, and that generalization may not be true for many, many people. But it is our condition today – and one we will grapple with long after the fiscal cliff, debt ceilings and Tea Parties are a dim memory.

Comments
17 comments so far | RSS Comments RSS

This is all very interesting. I do believe in part that we are not really going anywhere if we “go over the cliff”, and I do believe we have to reinvent our economy now that information technology is replacing hands on employees. We will all probably have to be more self sufficient and find our own ways to make money. I also thought it interesting that you mentioned that we will also need the government less and less as time goes by. I think the elected family sees that writing on the wall, and while the GOP in particular keeps screaming about a smaller government, they would not exist if we did reduce it. So their whole point is moot, as always. Thank you for this article. Very well done!

Posted by susette | Report as abusive
 

WOW!

If I had known the bullshit was going to get so deep, I would have worn my rubber boots before reading this well-crafted load of crap you present as our future.

The whole point of your article, which you miss entirely, whether by ignorance or design, is that globalization has made labor completely “fungible”.

In other words, labor — whether for manufacturing or service — has become totally interchangeable anywhere in the world, which is the ultimate result of the technological idea of the Industrial Revolution that made mass production possible and reduced the cost of goods and services to the masses.

It is ironic that the benefits of the Industrial Revolution have now come full circle to be turned against those who invented it, resulting in a death spiral of ever-lower standards of living as the profits accrue to the owners of the factors of production (i.e. the wealthy class, who are the ultimate beneficiaries of globally fungible labor costs).

For this reason alone, NONE of the rosy future you predict will occur.

In truth, the US economy has been totally hollowed out by globalization to the point where we survive soley by dint of printing money. When that Ponzi scheme finally fails, so will the US economy.

The glass is NOT half-full as you suggest, but COMPLETELY EMPTY.

Posted by EconCassandra | Report as abusive
 

“Americans are wealthier, healthier and more secure today than any group of people have been. Ever.”

Quite true in the overall, and easily missed in the “doom and gloom” we constantly hear from those of the failed “Occupy” movement and their “1% vs. the 99%” mind set that sees “revolution by the masses” as both inevitable and imminent. Their voice and influence in our society and economy is about that of any would-be panhandler…just about zero.

The availability and use of computers has facilitated innovation, discovery and collaboration on a scale never before possible. The average person in America today is so increasingly divorced from the tangible hardships, pain and danger actually experienced by our parents and grandparents that a majority of working age are totally and genuinely unable to comprehend how much better life is today by any reasonable measure.

Posted by OneOfTheSheep | Report as abusive
 

What you are selling is pure, unadulterated bullshit.

The result of globalization is that labor has become fungible, thus without proper controls over international trade, nations will begin to sink to the lowest common denominator, with all the wealth going to the owners of the factors of production (whether it is manufacturing or service makes no difference in principle).

Therefore, the “future” for the US you describe will never happen, something the vast majority of Americans still do not realize.

If you care to look at the handwriting on the wall, the proof of what I am saying is already occurring in every single country that engages in free trade under globalization.

That is why the global economy has collapsed and will continue to do so until the massive realignment of wealth has run its course, which should not be too long given the strain the global economy is under now.

Posted by PseudoTurtle | Report as abusive
 

@PseudoTurtle,

As usual, your response to incontrovertible fact is denial. Are you intellectually capable of moving to the next stage of grief which is acceptance?

The future of the U.S. is unfolding before us, just as it always has. The vast majority of Americans are continuing to live their lives, just as they always have. They’re at Walmart and in the malls, if not buying things then exchanging things.

The “handwriting on the wall” you would call our attention to is but the graffiti of America’s dissatisfied. The aerosol can I envision unconcealed in your hand makes me suspect the credibility and veracity of your motives and words.

The global economy has NOT collapsed. Many people in the third world today are suffering from obesity. Wealth has traditionally migrated in part to the owners of the factors of production, but so long as wages are paid it is not ALL of said wealth.

Such “realignment of wealth” as is taking place has improved the standard of living everywhere on the globe. Not uniformly, and not universally, but you seek and expect perfection to such degree as you dismiss genuine improvement historically unprecedented. In many places the “poor” drive!

Even with the unresolved problems in the middle east, the world is more at peace today than it has ever been. The doomsday clock ticking loudly during the Cold War is today much more muted.

Man no longer faces imminent nuclear destruction that could arrive in a heartbeat. Today the clock counts down a contest for resources between unproductive mankind reproducing ever faster and demanding more and more and the need to invest in the research and programs that will allow man to leave this big blue marble and expand into the solar system and eventually the stars before we manage to turn it into a big brown marble. You had best understand that this contest is one between whether mankind commits suicide or survives the next fifty or one hundred years

There will be no “revolution” such as you so obviously desire before you and your philosophies are long dead and mercifully forgotten. It is you that are trying, without the slightest prospect of success, to sell “pure, unadulterated bullshit.” Good luck with that.

Posted by OneOfTheSheep | Report as abusive
 

Obviously if unemployment is still high it not the time to worry about the bond holders. All of the parts of the fiscal cliff will raise the price of US bonds and reduce demand in the economy. If we had lots of inflation or low unemployment it would be just what is needed to pay off the debt.

I assume therefore either we leaders who do not care, or leaders that are dumb, or paid by bond holders to put one over on us.

Posted by Samrch | Report as abusive
 

OneOfTheSheep the malignant “realignment of wealth” in the world since “deregulation” allowed the wealth to trickle up instead of trickle down, and for the first time in history, create super-national corporations, corporations with financial resources larger than major nations, such as AOL-Time-Warner, who in 2002 lost $99 billion, enough to run Australia for a year, and remained in business, is shown by recently published undisputed U.S. Government figures. Under President Clinton, 1 percent of the U.S. population enjoyed 45 percent of the wealth increase in the U.S. Under the last President Bush, 1 percent enjoyed 65 percent of the wealth increase. Since 2010, ONE PERCENT of the U.S. population has enjoyed NINETY-THREE PERCENT OF THE WEALTH INCREASE in the U.S., and THIRTY FOUR PERCENT of the wealth increase in the U.S. since 2010 was enjoyed by ONE-ONE-HUNDREDTH OF ONE PERCENT OF THE U.S. POPULATION – 1500 families in America with an average annual income of $28,500,000.

Oh, sure, “If the size of government is reduced, and business is relieved of the burden of government regulation, and the rich are relieved of their burden of taxation, and government is relieved of its burden of welfare, government will be more efficient, business will more profitable, more jobs will be created, and the wealth will trickle down through all of society and the whole country will prosper, eliminating any need for welfare.”

“Arbeit Mach Frie! Work makes you free! There is warm food, and candy for the children, but first hot showers . . “.

Posted by JohnyKing | Report as abusive
 

The biggest single threat we must address is the growing sense of entitlement such as those in the Occupy Movement. Free education, guaranteed employment, annual increases without reference to performance, free housing etc. This attitude dooms all society.

Posted by My_take | Report as abusive
 

> “Those views also put government in a central position as economic steward, which again was the case in the 20th century. Today’s federal government is hardly a hotbed of innovation and may matter less to our collective future than we assume.”
OR, in the coming economy, with differences between rich and poor being exacerbated by new automation technologies (and wealth therefore being concentrated in the hands of fewer and fewer individuals and dynasties); government will become more and more important in ensuring that everyone gets a fair deal (and the economy is managed in such a way as to provide genuine incentives for everyone to try their best and make the best of themselves).

> “…crafting a set of new economies based on social media and software applications that are changing the way business is done and commerce is transacted…”
As a Cambridge University computer science graduate and a freelance developer of web applications, I would personally suggest from my perspective that social media has great potential that is currently greatly overestimated by the market. Fundamentally, at the most basic level, it doesn’t matter what technology you apply: business is ALWAYS based on TRUST and therefore on PERSONAL RELATIONSHIPS. Social media may help make those connections more efficiently (especially where credible product ratings & service feedback scoring systems are put in place). Social media is currently over-rated by people who generally don’t understand it. They’ve fallen for the spell of its personal magic, but we will all vomit out this illusion when we find out for ourselves how it will start attacking our privacy when “monetized”.

> “There will be less disease, more caloric abundance and increased life spans even with the attendant risks of climate change.”
— THIS is a very bold prediction. I’m not sure I agree with this.
http://en.wikipedia.org/wiki/File:FAO_Fo od_Price_Index.png
— If this trend continues much longer, we’re going to see increasing conflict… We must do something about this, or else we will certainly not see the things you’re predicting.

Otherwise, a fine article in my opinion! Over the coming weeks and months, we might see some fantastic buying opportunities on the stock exchange. People who “play safe” by staying out of the market will miss out, and so will those who merely gamble instead of using their brain and their personally peculiar insights.

Posted by matthewslyman | Report as abusive
 

A ‘wishful thinking’ article.
You can sell this to the mentally disadvantaged, but not to the world’s millions of unemployed college graduates and millions more of unemployed workers, or to the even more millions of middle class citizens who are rapidly falling into poverty.

It is “The Big Divide” with its sequel “The Mariana Trench”

The worldwide OWS has been quiet, but not going away or diminishing. It is a byproduct of the economic inequality and it does not need any proponents for its existence, the economic disparity creates it independently.

It has been so throughout history, and it has brought down every civilization.

Posted by EthicsIntl | Report as abusive
 

“No Congress would likely welcome the reality of 12 million people with no income.” The word “reality” is key here. Unfortunately, the Tea Party and other right wing extremists in the House are not interested in reality only ideology.

Posted by QuietThinker | Report as abusive
 

Ethicintl….Since when is a college degree a guarantee of anything? Have you looked a the course of study many of these “graduates” followed? It was a total waste of time and money (surely not effort)–meaningless degrees, with few demands other than showing up (and sometimes even showing up isn’t a requirement).

We have NCG’s from premier engineering schools commanding starting salaries in the mid $80′s–but they have solid degrees and are willing to go where the work is.

But they made a commitment versus OWS players who would rather dictate “well, I won’t move there for that job, or I don’t want to start at the bottom”…of course there isn’t any employment.

I work with some damn good young people who are willing to go the extra mile. They didn’t make demands, they only asked for a chance–and stepped up to the task.

The OWS supporters standing on a corner demanding economic equality are getting exactly what their time and effort are worth–standing on a corner is not a high-demand, or highly compensated position. They are responsible for their own economic disparity.

This is the first generation to demand economic “equality” merely because they showed up. Really….a Columbia University graduate with a degree in “__________ Studies” wasn’t smart enough to figure out the degree is not marketable, or the pay in the job grade cannot cover their $100,000 in student loans? Or the second tier law school graduate who did not realize that the demand is not there?

At what point does the light go on?

Posted by COindependent | Report as abusive
 

@OneOftheSheep, your viewpoint isn’t quite as cheery in today’s comments of the article written by Mark Leonard. Which is it – doom and gloom or a bright and happy future by embracing our technological and service oriented future?

Posted by JL4 | Report as abusive
 

What I find the most interesting is broad strokes Edgy paints then moves with such satisfaction to a new canvas. What about those middle class men and women who now have no middle class job or skills to support themselves? Even in the macro this is not good for the spending power of a significant segment of the economy. But as Edgy readers know this is not a concern for the men who wield the widest brushes.

Posted by Stanley7746 | Report as abusive
 

@JL4,

As always, we must choose from that which is available. If what we would choose is not available, should we kick and scream and throw a tantrum or should we “suck it up” and do what we can, where we are with what we have? Americans have traditionally been better at this than most.

I have found success to be essentially a difference of perspective. In general, failure should be viewed as both a learning experience and a temporary condition. To succeed you must try, but you will not succeed every time you try. My uncle has a sign on his desk: “All I ask is an honest advantage”. In any contest, push when you have advantage and yield when you don’t and bluff seldom and well. Above all be fair and gracious, for the respect of one’s peers IS an “honest advantage”.

Your question again reminds me of the conversation between the young Indian warrior and the old one. The young one says: “Within me I feel the presence of a good wolf and a bad wolf. How do I know which will prevail?”. The old one smiles and explains: “The one you feed, of course.”

As the information age settles upon us, it will take fewer and fewer to run our society and do what must be done. Stanley7746 asks what will become those with no “place” (i.e. job or skills in demand) in it. That is, as it has always been, up to them. What do you do when you leave school? What do you do when you leave the military? Your options depend on how well you have prepared in advance for these predictable “transitions”. We are each responsible.

When the industrial revolution mechanized weaving, etc., many people were displaced; some permanently. The apprenticeship system as “the” way one acquired a skill they would practice for life collapsed when books could convey skills and the “common man” was enough educated to glean such knowledge from them.

When automobiles replaced horses as transportation, a majority of farriers, saddlemakers, wagonmakers, mule drivers, and buggy whip makers were displaced. They could either starve or figure out another way to “support themselves”. Is it not obvious that such “displacement” follows progress much as night follows day?

One of the “rules” is that life isn’t “fair”. Only a fool expects it to be. Look at man as a mammal…he has eyes on the front of his head. That classifies him as a mammal predator. Look at the rabbit, the horse, the lamb…these are mammal prey. Those humans who lose “situational awareness”, educationally, professionally, or in social context, will ever lose out to those who don’t.

To “be prepared”, one must seriously and often weigh the best AND worst possibilities of circumstances in constant change. We don’t have to predict the future with absolute accuracy. We just have to do better than most. Those who try usually do better than those who don’t.

Posted by OneOfTheSheep | Report as abusive
 

Well hats off to you @OneOftheSheep for managing to blend the Creative Destruction theory, Willow that bends Homily, and predatious nature of humans in just under nine paragraphs.
And thanks for pointing out any misconceptions we entertained concerning the socio-economic food chain. When we suspend the natural occurrence of loss, and then foist it upon the weakest in our society, we are in fact exposing the camouflage of the social contract for what it is. That was an important lesson.

Posted by Laster | Report as abusive
 

@Laster,

Your first sentence was not easily followed, beginning as a compliment but obviously intended to wound. Et tu, Brute?

When I pointed out that “…“displacement” follows progress much as night follows day” it was in the sense of personal observation. It has nothing to do with the Creative Destruction theory arising from the delusions of Karl Marx who would see Capitalism as so inflexible as to repeatedly sow the seeds of it’s own destruction.

When I suggested to “…push when you have advantage and yield when you don’t and bluff seldom and well” I spoke of tactics to be employed by those of perceptive intelligence. The “willow that bends” to strong winds is hardly comparable; inasmuch as the Willow does not bend because it is more intelligent than stiffer trees, but because it is a more flexible natural structure.

And any student of History is far, far ahead of me when it comes to perceiving the predatious nature of the human animal. The twentieth century alone put the barbarism of all conquerors who came before to shame in both the volume of unrestrained evil and the sophistication employed.

Perhaps your intent was to figuratively “slay” me as the “bearer of bad tidings” when I but spoke unflattering truths obvious to all who would see. You imply a uniformity and certainty to “…the social contract…” which is at best a theory quite fluid in interpretation.

To quote the Internet Encyclopedia of Philosophy: “…feminists and race-conscious philosophers have argued that social contract theory is at least an incomplete picture of our moral and political lives, and may in fact camouflage some of the ways in which the contract is itself parasitical upon the subjugations of classes of persons.”

Posted by OneOfTheSheep | Report as abusive
 

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