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The House overwhelmingly voted down a bipartisan budget proposal, a mix of spending cuts and tax hikes, in favor of a partisan bill that has no hope of being enacted. It’s tempting, if you can forget the trauma of last year’s debt ceiling debacle, to chalk this up to the normal volleys of congressional politics, a sort of byproduct of democracy.
That view, unfortunately, steps outside of recent history. Peter Coy today has an apocalyptic warning about what will happen on the very first day of 2013 unless Congress acts. Without action we could be in for instant austerity:
The automatic spending cuts, known as a “sequester” under the Budget Control Act, are only part of the austerity that’s slated to take effect on Jan. 1. That same day, the 2001 and 2003 Bush tax cuts will be over if current law stays on the books. The Obama payroll tax cut and emergency unemployment benefits are also slated to expire. Barclays Capital (BCS) calculates that if all those changes occurred as scheduled, they would subtract 2.8 percentage points from the economy’s annual growth rate in the first quarter of 2013, leaving growth at just 0.2 percent – a hair’s breadth from recession.
Coy suggests Congress will cut a deal to soften the blow – but says it’ll come at the expense of a whole new round of bickering and economic uncertainty. This is definitely not a new warning: No less than Ben Bernanke, Mohamed El-Erian, Martin Feldstein and Alan Blinder have used the same talking points, warning of the U.S. falling off a “fiscal cliff” in 2013.
All of which is to say, as Clive Crook suggests, the single biggest risk to the tentatively promising U.S. economy is from the very people we’ve elected to run it. (Yes, this is also Europe’s biggest problem). This has increasingly unpredictable and just plain bizarre consequences for the economy. Businesses, it turns out, can’t even get reliable political results from the GOP:
…a host of routine business tax breaks – from wind energy subsidies to research and development tax credits – cannot be passed because of Republican insistence that they be paid for with spending cuts.
“Business groups that worked hard to install a Republican majority in the House equated Republican control with a business-friendly environment. But the majority is first and foremost a conservative political force, and on key issues, its ideology is not always aligned with commercial interests that helped finance election victories.”
There’s an irony, then, in the conservative argument that the government just needs to get out of the way of the economy: Doing nothing, in this case, is the worst thing we can do.
And on today’s links:
Unemployment decreases life expectancy, hurts your children’s future earnings – and even your ability to read – NYT
New data shows the UK economy continues to shrink – Economist
Germany’s jobless rate hits a new low – Reuters
Euro zone finance ministers are freezing funds in case they have to bail out Italy or Spain – FT
The MIT professor and parrot owner behind the individual mandate – NYT