mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
U.S. Economy Toes Fiscal Cliff

The gridlock in Washington and the prospect of the “fiscal cliff” has already started to hurt the real economy. Companies are holding back on investments and hiring because of uncertainty, reports the NYT:

A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth in the coming months.

Executives at companies making everything from electrical components and power systems to automotive parts say the fiscal stalemate is prompting them to pull back now, rather than wait for a possible resolution to the deadlock on Capitol Hill.

Democrats and Republicans are far apart on how to extend the Bush-era tax breaks beyond January — the same month automatic spending reductions are set to take effect — unless there is a deal to trim the deficit. The combination of tax increases and spending cuts is creating an economic threat called “the fiscal cliff” by Ben S. Bernanke, chairman of the Federal Reserve.

This is just one more reason to long for election day: not only will it end this dreary and overextended campaign, but once we see what the new balance of power in Washington will be, the real negotiations can begin that will hopefully end the uncertainty.

There’s a silver lining to this dour news. Assuming there is some kind of sensible and decent agreement on tax and fiscal policy, the economy will likely get a nice boost as all that pent up spending and investment kicks in.

Features Icon
show comments
  • Jim.

    The problem is that no one has a good idea of what the government we’re willing to pay for looks like.

    Democrats know what sort of government they want (“More”, to quote a historic union leader). Republicans know what sort of government they want to pay for (no more than we pay now, thanks very much.)

    As a member of the middle class, let me just add that my disposable income is nowhere near big enough to cover the sort of tax hikes the Democrats would like, and keeping taxes flat is the only option that will get my vote in November.

    Honestly, there are enough rich Leftists out there that if they were willing to put their money where their mouths were and give to charity, the social provision they wanted would be there without having to force other people to pay anything.

  • Eurydice

    Hmmm. not sure how this situation differs from the one that’s existed over the past several years – or how negotations will be more “real” after this next election than they were after the elections of ’08 and ’10.

    Whatever the balance of power turns out to be in November, the parties’ main goals will be to solidify it or overturn it – they’ll just start chasing the next election. That is, unless the big money that fuels them starts pointing the carrot in a different direction.

  • Stu

    When the President and Congress extended the tax cuts in 2010 they said they did so because raising taxes during difficult economic times was not a good idea. I don’t understand how the situation is any better now?

  • Kenny

    Please …. lets broaden our perspective and do more than regurgitate what’s in the New York Times.

    Heck, you’d be better off looking in the New York Post for insights.

  • thibaud

    “economy will likely get a nice boost as all that pent up spending and investment kicks in.”

    As Romney would say, “Of course!”

    OF COURSE it’s foolish to slash spending when there’s a deep hole in aggregate demand – as Romney himself agreed when asked not long ago by TIME’s Halperin about the issue.

    A pity that the Tea Party clowns have held up this sane and uncontroversial approach for years now. Just imagine how much better off we’d be if we hadn’t lost nearly two years to cynical GOP/Tea Party obstructionism.

  • Eurydice

    Thanks, Kenny. Even if one sets aside political bias, major newspapers are always lagging in their reporting, sometimes by weeks and months – and they don’t have the space, capability, or even inclination to pursue a story in-depth, which would excuse their lateness to the party. So, to quote the NYT, or the WSJ, or even the FT (paid registration required), is just to compound the lateness and lack of depth.

    But, not to be a carping sourpuss, I’ll offer Prof. Mead a bit of ammunition for his “blue model” thesis – a front page article in the Boston Globe about how the “most lucrative contract in North America”, the contract to operate the transit system’s incredibly inefficient and money-losing commuter rail, was put out to bid. And from 25 companies which expressed interest, only two came back with a bid – some outfit in France, and the company which currently runs the commuter rail in such an inefficient way (a company which was founded by the head of the transit system and who’s a good pal of the transportation secretary). They’re disappointed that there are only 2 bidders, but everyone’s sure the process will be vigorous and aggressive.

  • Gene

    Thibaud, thanks for the DNC talking points. As always, you save me the trouble of having to go to their website for the latest spin.

  • Mick The Reactionary


    “A pity that the Tea Party clowns have held up this sane and uncontroversial approach for years now. Just imagine how much better off we’d be if we hadn’t lost nearly two years to cynical GOP/Tea Party obstructionism.”

    I seem to recall that Barry O and Demorats had complete control from 1/2009 – 1/2011.

    I also recall that at $2Trillions or $3T went into black hole never to be seen again.

    Did my memory fails me?

    Before repeating this lovely experience, please provide a shred of evidence, headlines of MSNBC and DailyKos do not count, that $3T did any good?

    Please evaluate that “investment”, if you can, in terms of return on investment (you are familiar with this term, yes?).

    Please contrast the investment of $3T in Sylindra (sp?), green-tech boondoggles, enriching cronies and political supporters vs alternatives ways to blow away the money.

    If you do your work you might have a powerful script that will convince a hardcore Tea Party citizen that you and Obam are right: the way to restore economy is to enrich friends and burn money.

  • Walter Sobchak

    OTOH, the light at the end of the tunnel may be a freight train headed towards us.

  • thibaud

    Deficits are bad – except when they’re not.

    Keynesian stimulus is bad – except when it’s not.

    Federal help for declining communities is bad – except when it’s for Paul Ryan’s hometown.

  • thibaud

    Mick – why is your candidate so vigorous (“of course!”) in his defense of stimulus?

    He seems to show as much contempt for you and the Tea Party (“haha, suckers!”) as for David Cameron, Boris Johnson and other mere mortals who dare to match his brilliant record in Nowhere, UT.

    Have you been conned?

  • Kris


    Can you remind me which presidential candidate made the following statements?

    “The way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt … That’s irresponsible. It’s unpatriotic.”

    “Hillary Clinton’s attacking, but what’s she not telling you about her health care plan? It forces everyone to buy insurance, even if you can’t afford it, and you pay a penalty if you don’t.”

    “There is no doubt that we’ve been living beyond our means and we’re going to have to make some adjustments. Now, what I’ve done throughout this campaign is to propose a net spending cut.”

  • Kris

    thibaud@11: The Tea Party (as a broad categorization) has been quite tepid in their support of Romney, seeing him as too moderate. They’re only supporting him now because they see him as better than Obama. You’re the one who insists on painting him as an extremist, and now you turn around and say: “See, even this extremist isn’t as extreme as you folks!”?

  • thibaud

    Romney’s not an extremist, he’s an opportunist.

    He’s in favor of mandates (in Massachusetts) – and then he’s against mandates.

    He’s against stimulus (for GOP primary audiences) – and then he’s in favor of stimulus.

    He’s against tax reform when it means helping himself to tens of millions of $$$$$ worth of tax breaks and dodges for his personal accounts in the Caribbean and Switzerland – and then he’s in favor of tax reform.

    Romney is a nowhere man. The type who will end up being mistrusted and loathed by everyone, across the spectrum.

  • Jim.


    As opposed to Obama, who’s against mandates. Then he’s for them.

    He’s against massive spending by Bush. Then he’s for massive spending on his own watch.

    He’s against Gitmo. Then he keeps it open.

    He’s for making “hard choices”, then he doesn’t make any at all.

    Thibaud, you really have to make a distinction between your candidate and his opponent if you’re going to make an attack stick.

    We have the Empty Suit vs. the Blank Screen.

    Lesser of two weevils… At least electing Romney would allow us to throw one more bum out this year, even if four years down the line we’ll have to throw him out too.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service