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.