Government Spending

How The Looming "Fiscal Cliff" is Killing Business Investment


Our story thus far: The federal government has failed to even vote on a real budget in over three years, the economy is in the tank, the fall election pits the Wolf Man versus Frankenstein's monster and come January 1, 2013, current tax rates revert back to much-higher (and less progressive!) levels from the Clinton days while automatic spending cuts kick in. This is the "fiscal cliff" that Fed head Ben Bernanke warns about.

Now the NY Times reports on business' reaction:

"It's totally irresponsible and absolutely insane," said Evan R. Gaddis, the president of [am] electrical manufacturers' group. "The two parties are really dug in. Companies see the writing on the wall and business decisions are now being made on this."

Business leaders say the latest fight feels different. Last summer, during a confrontation over raising the debt limit that risked a government shutdown, Mr. Powers of Hubbell did not alter course at his company, as he is doing now. "We never expected the government to shut down," he said. "This bluff carries much more weight."

The main decision business is making, according to the Times? Says a representative business owner:

"Everyone is sitting back and hunkering down."

Whole thing here.

That's how regime uncertainty freezes an economy. And on top of the current morass you've got to add the lack of clarity about who will win the fall elections, the actual costs of implementing Obamacare, and tons more. Note that this is all stuff that doesn't need to be uncertain. It's within the realm of existing policymakers to provide more stability and predictability over the things the government controls (such as tax rates). Running a business is tough no matter what—markets are volatile and as any number of high-riding operations could tell you, creative destruction is alive and well in the private sector.

And don't mistake the inability of the feds to create policy with gridlock. As Veronique de Rugy and I wrote in The Hill last week, the Dems and the Reps have no trouble putting aside partisan feelings to pass farm bills greasy with pork. And there's this:

In just the past few months, for instance, the ostensibly gridlocked Congress reauthorized the Export-Import Bank program that gives money to foreign companies to buy U.S. goods; extended sharply reduced rates for government-subsidized student loans; re-upped the Essential Air Service program that subsidizes airline service to rural communities; and voted against ending the 1705 loan-guarantee program that gave rise to green-tech boondoggles such as Solyndra and Abound. None of these were party-line votes — all enjoyed hearty support from both Democrats and Republicans.

We conclude:

Simply put, this is no way to run a country. The problem is not gridlock or ideological fervor. The problem is an increasingly irresponsible government that has for far too long been far too easily let off the hook. Whichever party emerges victorious in November, and whatever happens in the lame-duck session, this much is certain: Unless taxpayers begin demanding their president and Congress act responsibly, and do the actual work they were elected to do,"gridlock" will be the least of our problems.

More here.

NEXT: ANOTHER Athlete kicked Out of the Olympics

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  1. while automatic spending cuts kick in. This is the “fiscal cliff” that Fed head Ben Bernanke warns about.

    This implies that cutting government spending is part of the fiscal cliff.

    I don’t like that implication…plus recent economic studies point out that deficit spending while debt is at 100% of GDP hurts the economy…the exact opposite of sustaining or stimulating it.

    If anything automatic spending cuts would forestall the coming fiscal cliff.

    1. Of course spending is the major problem, here and in Europe. Everyone knows that, but some of us are going to put our hands on our ears and sing “La, la, la, I can’t hear you” until total fiscal disaster intervenes. Even then, it’ll be someone else’s fault. Maybe the Jews.

      1. Backlash on the Jews is pretty likely, sure. But let’s be a little more creative. Surely someone else can take the blame, without offending the sensibilities of legions of Most Honorable History Professors.

        Libertarians come to mind immediately. And the pogrom to eliminate us them could be totally cost effective since there are so few.

        Other possible Scape-Groups:
        -Rural Americans.
        -Whatever nationality speaks Tagalog.
        -“Bad” Dog Breeds.

        The list is practically infinite.

        1. JUGGALOS

          1. no. juggalos get the frontlash.

        2. -Puppeteers.
          -Clowns (ex rodeo clowns, they’re cool).
          -Loud motorcycles.
          -Cow farts.
          -Reverse splenectomies.

        3. I have a rock that keeps away tigers.

          Anyway, we all know how it’s going to go down. The left is going to blame the right for being greedy. The right is going to say the left is being punished because God’s angry about abortion/fags/cutting your hair at the temples. When the shit really hits the fan, all that will matter is which side is armed.

        4. Oh, sure, the libertarians make the most sense. They should be dealt with.

    2. THey’re more like semi-automatice cuts.

      1. Or full-fledged economic assault weapons, really.

  2. Wait, is that an actually pertinent and funny political cartoon?!?

    1. Is it Bok or Payne!? It has to be one of them, right? Alt-text can’t be correct!

      1. Why would you ever think Bok or Payne drew an actually pertinent and funny cartoon?

        1. They’re always pertinent and funny.

          Just not intentionally.

    2. It looks like it, even though it only has 3 labels.

  3. RE: The GOP Pig’s dialog

    Everybody hates you because you don’t redistribute your flesh to the general populace as Free Shit. It’s pretty simple. Giving Free Shit to your handful of business cronies doesn’t rack up nearly as many votes as giving Free Shit to every broke Womyns Studies And Climapolitology Major (and you get their parents’ votes then too, since it eases the burden those Valuable College Educated Youths impose living in the basement.)

    At the very least, you gotta pick Cronies who will trickle down the Free Shit. Cronies like Community Organizers, and…ok, that’s the only example I got.

  4. I have it on very good authority* that regulatory uncertainty has nothing to do with the economic quagmire.

    * – Those letting slip the reins of regulation.

    1. It’s just amazing how stridently they hasten the day when everybody just says “Yo, Fuck Your Regulations”, and gets back to business as usual.

      And when those regulators, feeling the sting of unemployment and utter uselessness, come looking for Real Jobs….oh man, am I gonna have a whole stack of pointless paperwork waiting for them. Just. For. Them.

  5. Time for a little creative destruction in the government sector, don’t you think?

    1. That’s not the point. The uncertainty would wreak havoc on the all ready struggling private sector. I think it’s time for some just drastic reform to the government sector, but not in a way that hurts everybody.

      1. Because businesses just wouldn’t have a clue how to proceed without Big Daddy Regulator layin down at least SOME amount of regulatin, right?

        1. We aren’t even talking about regulation uncertainty, we are talking about tax uncertainty – a much bigger deal

      2. I just want it to hurt everyone in the government.

        1. if it doesnt hurt it aint cut enough. Cutting govt w/o pain is like taking a shower with a rain coat on.

  6. This is the biggest point that all liberals miss – certainty matters! Dr Nick Bloom at Stanford has created an index that measures the economic impact of uncertainty, and we are already at unprecedented levels. It is absolutely insane to be talking about raising taxes and significantly harming this fragile “not-really-recovery.”

    1. Are you sure?

  7. Animal Farm, Animal Farm,
    Never through me shalt thou come to harm!

  8. While the Republicans are usually the Stupid Party, the Democrats are going full-retard on this election cycle. Embracing an insane tax increase – a return to rates 13 years ago without even indexing the brackets for inflation – is a certain loser. It will repel voters and ensure that economy is complete shit by November, when they will take the blame.

    1. I think you vastly over-estimate the intelligence and priorities of the electorate.

      1. They certainly can’t be under-estimated.

  9. Dont blame me, I voted for Ru Paul.

  10. Nick, I did not need a picture of Ben Bernanke tripping balls. Wish me luck getting that image out of my head.

    Although it does explain our monetary policy.

  11. Nick, I did not need a picture of Ben Bernanke tripping balls. Wish me luck getting that image out of my head.

    Although it does explain our monetary policy.

  12. wow. there is an elephant and a donkey in the room.

    “multinational corporations are the pirates of the modern world, armed with governments.”

    our vote is an expression of public opinion, not an actual expression of power. it hasn’t been for a while. that’s a symptom of the real problem.

  13. I blame the GOP for making the Bush tax cuts “temporary”. This is where you decide to implement a sunset provision?

    1. Yeah, what’s up with that?

      1. Democrats threatened filibuster and Republicans suck at their jobs….so bipartisan compromise.

        1. Also making the tax cuts temporary instead of making them permanent is a Republican “political” victory.

          If they were permanent then Republicans could not keep juicing the issue for campaign contributions.

  14. Cliffs don’t loom. You just fall off them suddenly.

  15. Farm bill’s actually getting held up right now, because enough conservatives and libertarians in the GOP dislike it. Plus Boehner’s never been a farm bill fan, having voted against the ones when Bush was in office as well.

    It will, of course, pass eventually with a bipartisan majority though.

  16. We have an irresponsible government as the result of an irresponsible electorate.
    When you allow children [those defined as having an immature, not fully developed brain] to vote for who is going to make the adult decisions you end up with this kind of mess.
    First step is to return the voting age to 21 and then have a serious discussion, based on science not touchy feely warm fuzzies, of what is an appropriate age to allow people to make decisions that have long term consequences for all of society.

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