Article

Avoiding the Fiscal Cliff

Economy Traveling in a Fog of Uncertainty

Natalie Gochnour

August 1, 2012


"Take some of this burden from us.” That was the request of Federal Reserve Chairman Ben Bernanke during his summer testimony to the Senate Committee on Banking, Housing and Urban Affairs. In an uncharacteristically revealing way he asked members of Congress to help with America’s ailing economy. Fed chairman typically focus on monetary policy and leave advice on fiscal policy to someone else. But these are not ordinary times.

Bernanke’s comments underscore that American business is in the back seat while government sits in the front seat holding the steering wheel and applying pressure on the brake. Clumsy economic leadership has our economy traveling in a fog of uncertainty. Not knowing what lies ahead, the economy travels 35 mph in a 65 mph zone. As the end of the year approaches, let’s hope our elected leaders don’t drive us off the fiscal cliff.

The fiscal cliff—shorthand for the tax increases and spending cuts written into current law—is now roughly 150 days away. The Congressional Budget Office says that if Congress takes no action, the U.S. economy will be in a recession early next year and 1.25 million fewer jobs will be created in 2013. It’s like Forest Gump says, “Stupid is as stupid does.”

The fiscal cliff includes the expiration of the Bush tax cuts ($281 billion) and the Obama payroll tax cuts ($115 billion), changes to the alternative minimum tax ($120 billion), the end of emergency unemployment insurance ($40 billion) and other tweaks slated to happen by the end of this year. Then in January 2013, automatic budget sequestration kicks in ($100 billion in first year). All tallied, the cliff represents $728 billion less spending in the U.S. economy in 2013 or 4.6 percent of GDP, all at a time when 12.6 million Americans go to sleep each night without a job. 

I wrote in this column last fall that I was mad that our elected leaders played chicken with the credit worthiness of the United States. They proudly walked right up to the line of fiscal darkness, and I fear they will do it again. I was bold enough at the time to write, “Mark my words,” as I elaborated about the economic harm that would ensue. The most recent economic numbers confirm my frustration. 

In each of the last three months the American economy has created an average of just 75,000 jobs per month. We need four to five times this amount to get us back on track, and the near-term outlook is tenuous at best. Unemployment will remain above eight percent for the foreseeable future, even though American business is ready to spend, but for poor fiscal leadership in Washington, D.C.

I’ve written in the past about the need for a new kind of patriotism that eschews politically motivated policies and exalts good old-fashioned problem solving. We need civic leadership that says “we can and will do better.” We need to take the best ideas from diverse perspectives and forge common ground for the common good.

If the U.S. economy drives off the fiscal cliff it will be because our elected leaders were in the front seat arguing and fighting over the steering wheel while the rest of us sat in the back seat horrified by their driving skills and amazed at their recklessness.

Here in Utah we can talk all we want about our workforce, our low business costs, our infrastructure, our fiscal responsibility, our location and a million other attractive assets—but the Utah economy is inextricably linked to the national economy. What the Utah economy needs most right now is leadership in Washington, D.C. We need a long-term debt reduction plan that includes entitlement reform and new revenues. We need certainty on the tax code. And, we need to resolve the debt ceiling debate earlier rather than later.

Ben Bernanke has asked for some help. For the sake of the American people, it’s time for Congress to give it to him.

Natalie Gochnour is the chief economist at the Salt Lake Chamber

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