January 6, 2013

Analysis: The fiscal cliff rundown

Once again, Congress dodged a bullet they had fired at themselves. They once again took our nation to the brink and, just in the nick of time or shortly thereafter, passed a half-hearted remedy. Because the problem remains unfixed, they can return to the brink in a few months.

This time, the bullet was a bazooka. A while back, Congress put in place a poisoned pill that must be swallowed Jan. 1 unless Congress could agree to something better.

Anything would be better than across-the-board tax hikes and spending reductions. It was fiscal surgery with a blunt ax. You would think that would be sufficient motivation to create something much better. But, no, why waste an opportunity to threaten another recession.

Problem put off

I do not think that the sequester’s tax increase and spending reductions would decrease household income and consumption sufficiently to plunge us into another recession in itself. However, it could in combination with a global reaction at a time in which other economies, too, are teetering.

Congress did not solve their self-induced fiscal cliff. If they agreed to fire a gun at themselves, they could always agree to not pull the trigger. Instead, they voted to reconsider the so-called sequestration trigger in a couple of months, just when they must also deal with another periodic vote to raise the debt limit.

Normally, a vote to increase the debt limit is routine. After all, only Congress can authorize spending, so Congress is punishing its own folly if it refuses to authorize the president to pay the bills it incurs.

Congress took a strategic turn once again. By creating these crisis points, Congressional leaders try to extract concessions from the executive branch. It seems like the only thing that held dysfunctional politics in check this time were U.S. and global financial markets, ironically enough.

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