December 19th, 2012 1:19 PM by Nick Rapplean
The primary reason being given by most people who remain confident that we wont slide off the fiscal cliff into the ravages of returning recession do not, I confess, fill me with confidence. The reason is that Congress surely wouldn’t put us knowingly into such an untenable fiscal position. I mean, they would NEVER be that stupid, right?
Well, maybe. The theory, though, bears a worrisome familiarity. The U.S. and Russia, when they were the only countries armed to the teeth with nuclear weapons, were certain no one would actually send one of the missiles into the air. Surely, wed all die. We called it mutually assured destruction, or MAD. And it was.
This is perhaps a very harsh analogy. Perhaps it would be better to call it a poker game with outrageously large stakes.
Or perhaps it would be most appropriate to ask, how in the world did the richest nation in the world reach this point, anyway? It’s beyond my understanding.
Without rattling on in incredulity, it may prove more relevant to point out that there are, in fact, a few reasons though none of them convince me completely to be somewhat confident that a deal will be struck and the fall from the fiscal cliff averted. And the main reason is the apparent strength in the nations underlying economy. It seems to me to take a little of the heat off the negotiations but also, ironically, to keep the heat up high.
You see, if the economy is moving forward in a positive (though admittedly gradual) way, then the results of not being able to negotiate a bipartisan agreement on the various elements comprising the fiscal cliff will be on the backs of the politicians who didn’t hang in there and get the job done. We will face what may be a crushing descent into recession because of these people and it rather obviously won’t be because of an economy that is already slipping down a steep slope.
Surely, most economists would like to avoid the finger of blame here. It could shorten their public careers greatly. Especially when the nation has indicated (through polls) that it already has little confidence in Congress and in those most likely to botch up the possibility of difficult compromise.
And if we wind up falling back into a recession, the effects will be all too easily seen if were falling from today’s relative strength. Look for a moment: The poll measuring builder confidence the NAHB Housing Market Index has worked its way up in the last eight months to the 47 level, nearly the elusive point signaling the market is expanding and no longer contracting. The number of jobs has been growing gradually. Mortgage interest rates remain a basis point or two away from record lows. The nation’s capacity utilization rate which we can liken to how much of our national manufacturing is being done, relative to how much could conceivably be done stands strongly at 78.4%. (An 85% rate sends most analysts into palpitations over rising inflation.)
Things are looking up sort of. At least, we seem prepared to weather any storms that we haven’t spotted on our radar screens yet. And the storms that are all too evident as the fiscal cliff approaches will not get whipped up by a failing economic recovery. They’ll be whipped up by failing political processes.
There’s something else. A wise person used to declare: If you want to solve a problem, find a bigger one. (Counterintuitive at first, but think about it.)
We already have even bigger problems at hand: We are vulnerable to the damage that could be done by squeezing our current economy too tightly at its throat. That’s the potential recession problem. We are also extremely vulnerable to the fact that our system of entitlements simply cannot hold for many more years.
And that, remarkably, seems reason for optimism. Though it is very difficult to get our politicians and all of us, presumably to agree on anything of substance, almost all of us agree that we face very serious problems and must do something about them. Perhaps, at long last, we will.