Despite longer-term indicators of economic growth, the outlook for the coming year is not good. With or without the fiscal cliff, the economy could go into recession caused by recession in Europe and slowdown in China. Many large US corporations are pulling back on investment in new equipment, software and buildings.
Whether the large US budget deficits and the Federal Reserve's aggressive monetary policies will help or hurt are subjects of much debate. Most economists and other such experts feel they are needed.
Not all signs point down. Consumer sentiment is up, as is small business sentiment. Small business capital spending is up.
The consensus of opinion is that the fiscal cliff could be a tipping point.
Monday, November 19, 2012
Friday, November 16, 2012
Fiscal Cliff Conspiracy Theory
We all love a good conspiracy theory, and there are a number of possible scenarios available to the imagination regarding the so-called Fiscal Cliff.
At the witching hour of midnight on December 31, a wide range of taxes will go up and an even wider band of spending will be chopped. The consensus of opinion is that this is very bad, because it will probably cause a recession. The most serious effect will probably be that a lot of people who work for the government, or, even more likely, many who work on government contracts, such as employees of defense contracting firms, will lose their jobs.
The most widely expected alternative to this troubling outcome is that, after much posturing, shouting and fist-shaking, Congress will pass something that will swerve us away from the precipice at the last minute, and the President will sign it.
But what if they don't or he doesn't? And, more conspiratorially, what if they have already agreed that they won't?
Preposterous, you say?
Well, yes, you're right. It is preposterous.
But what if there are some factors in the backs of the minds of the participants that are saying to them, hmm, let's see how we can use this?
What if, as in the Benghazi cover story, a spontaneous demonstration of partisan bickering is hijacked by some players who have a serious intent to block the process?
Now, what could possibly motivate such serious intenders of harm?
First, it has been suggested by some Republican-leaning commentators that President Obama would not mind so much if no agreement were reached, because it would accomplish his objective of raising taxes on the rich. Then he could blame it on the Republicans. As for the spending cuts, he could re-establish the chopped spending the following year, after a public outcry against the cuts.
This seems a little far-fetched, too. But its logic does have a certain internal consistency--assuming Obama is the kind of cynical strategist it would take to go that route. (Or is that just politics?)
But that is just an example, and it is not the point I wanted to make.
The fiscal cliff was formulated a couple of years ago after failed negotiations on taxes and spending. The parties agreed at that time that on January 1, 2013 (a lucky year no doubt), taxes would go back to Clinton-era rates and spending would be drastically cut across the board. This deal kicked the can down the road and, it was hoped, gave the parties an incentive to come up with a more sensible solution before the clock ran out.
But now we are almost there, with no solution in sight.
Now, here's the point. The negotiators put this plan in place. In the backs of their minds was the thought that the deficit has to be brought under control somehow. But the participants also knew that the experience of centuries has shown that, in a democracy, budgets can only be brought under control by taking the process out of the people's hands. Sometimes the people realize they have to put the process into the hands of someone who will just do it. That is happening in Europe to some degree now. But it is not happening here. So, an alternative is: trickery.
We can't come to an agreement. Oh, no, we can't do it! So we will shout and posture and blame, but when the dust clears taxes will go up and spending will be cut. Oh well! It needed to be done anyway.
And what about the economy? Won't it suffer?
The interesting thing there is that the economy is showing signs of getting off the mat. If it wasn't for that factor, there would be very little thought of letting us go over such a cliff. But the signs of recovery (a real one now, not the wimpy breath of foul air we've seen so far) may give the participants another thought in the backs of their minds that maybe we won't go into a recession. Or maybe it won't be so bad, and we can blame it on each other, and oh well! But look, the deficit has been cut! It had to be done, and maybe everything will be all right in the long run.
Crazy, huh? Yes it is crazy, and after all it is just a conspiracy theory, an exercise of imagination. There are a million of them. We don't know what goes on behind closed doors. We just hope that the checks and balances, plus the scrutiny of the press, plus the threat of the next election will prevent anything really wacky from being hatched in the dark.
At the witching hour of midnight on December 31, a wide range of taxes will go up and an even wider band of spending will be chopped. The consensus of opinion is that this is very bad, because it will probably cause a recession. The most serious effect will probably be that a lot of people who work for the government, or, even more likely, many who work on government contracts, such as employees of defense contracting firms, will lose their jobs.
The most widely expected alternative to this troubling outcome is that, after much posturing, shouting and fist-shaking, Congress will pass something that will swerve us away from the precipice at the last minute, and the President will sign it.
But what if they don't or he doesn't? And, more conspiratorially, what if they have already agreed that they won't?
Preposterous, you say?
Well, yes, you're right. It is preposterous.
But what if there are some factors in the backs of the minds of the participants that are saying to them, hmm, let's see how we can use this?
What if, as in the Benghazi cover story, a spontaneous demonstration of partisan bickering is hijacked by some players who have a serious intent to block the process?
Now, what could possibly motivate such serious intenders of harm?
First, it has been suggested by some Republican-leaning commentators that President Obama would not mind so much if no agreement were reached, because it would accomplish his objective of raising taxes on the rich. Then he could blame it on the Republicans. As for the spending cuts, he could re-establish the chopped spending the following year, after a public outcry against the cuts.
This seems a little far-fetched, too. But its logic does have a certain internal consistency--assuming Obama is the kind of cynical strategist it would take to go that route. (Or is that just politics?)
But that is just an example, and it is not the point I wanted to make.
The fiscal cliff was formulated a couple of years ago after failed negotiations on taxes and spending. The parties agreed at that time that on January 1, 2013 (a lucky year no doubt), taxes would go back to Clinton-era rates and spending would be drastically cut across the board. This deal kicked the can down the road and, it was hoped, gave the parties an incentive to come up with a more sensible solution before the clock ran out.
But now we are almost there, with no solution in sight.
Now, here's the point. The negotiators put this plan in place. In the backs of their minds was the thought that the deficit has to be brought under control somehow. But the participants also knew that the experience of centuries has shown that, in a democracy, budgets can only be brought under control by taking the process out of the people's hands. Sometimes the people realize they have to put the process into the hands of someone who will just do it. That is happening in Europe to some degree now. But it is not happening here. So, an alternative is: trickery.
We can't come to an agreement. Oh, no, we can't do it! So we will shout and posture and blame, but when the dust clears taxes will go up and spending will be cut. Oh well! It needed to be done anyway.
And what about the economy? Won't it suffer?
The interesting thing there is that the economy is showing signs of getting off the mat. If it wasn't for that factor, there would be very little thought of letting us go over such a cliff. But the signs of recovery (a real one now, not the wimpy breath of foul air we've seen so far) may give the participants another thought in the backs of their minds that maybe we won't go into a recession. Or maybe it won't be so bad, and we can blame it on each other, and oh well! But look, the deficit has been cut! It had to be done, and maybe everything will be all right in the long run.
Crazy, huh? Yes it is crazy, and after all it is just a conspiracy theory, an exercise of imagination. There are a million of them. We don't know what goes on behind closed doors. We just hope that the checks and balances, plus the scrutiny of the press, plus the threat of the next election will prevent anything really wacky from being hatched in the dark.
Monday, November 12, 2012
Big changes in energy
The International Energy Agency (IEA, based in London) released a report today that projects that the United States will become the world's largest energy producer by the year 2020. By that year it is expected to be a net exporter of natural gas. By 2035 it is expected to be "almost self-sufficient" in energy.
The common belief in the 1970's that the world was running out of oil now appears to have been a bit premature. One wonders in hindsight (which is always 20-20) how we could get so worked up over something that was so far off base. And what else are we far off on today, one wonders? Now we can say, well, we have to run out of oil soon at this rate, don't we? Apparently we have a few more years left.
This development has profound implications for the balances of international economics and power. While the Middle East will continue to be important for oil--and indeed Saudi Arabia is projected to re-take the lead from the US in the 2020's--the US, and North America in general, will be in a strong position. North America is expected to become a net oil exporter. Most international flows of oil are expected to go to Asia, with China being the largest recipient.
This also points out the benefits of our entrepreneurial system, which has been able to lead the way, through innovation and risk-taking, to re-inventing the entire energy sector. Despite obstacles erected by government agencies the efforts of private companies and entrepreneurs have resulted in solutions that were, to say the least, unexpected.
It also means that while the future may still (eventually) be in renewable energy, that future appears to be much further off than we thought. Most reports indicate that we have enough natural gas to last 100 years. It is also probably very premature for our Federal government to invest in such things as solar and wind energy, because these technologies would seem to have a much longer runway to self-sufficiency than is currently practical. (There are markets for such things, but a lot of it has been subsidized.)
But this new vision of the future does merit a grain of salt and a word of caution, for, as with the estimates so poorly performed in the 1970's, these projections are not guaranteed to come true. Nevertheless, some of these trends have already been gathering steam for a few years and will probably continue for at least a few more years.
The report also says that gains in energy efficiency are expected to be another important factor in the use of energy in the coming years.
The common belief in the 1970's that the world was running out of oil now appears to have been a bit premature. One wonders in hindsight (which is always 20-20) how we could get so worked up over something that was so far off base. And what else are we far off on today, one wonders? Now we can say, well, we have to run out of oil soon at this rate, don't we? Apparently we have a few more years left.
This development has profound implications for the balances of international economics and power. While the Middle East will continue to be important for oil--and indeed Saudi Arabia is projected to re-take the lead from the US in the 2020's--the US, and North America in general, will be in a strong position. North America is expected to become a net oil exporter. Most international flows of oil are expected to go to Asia, with China being the largest recipient.
This also points out the benefits of our entrepreneurial system, which has been able to lead the way, through innovation and risk-taking, to re-inventing the entire energy sector. Despite obstacles erected by government agencies the efforts of private companies and entrepreneurs have resulted in solutions that were, to say the least, unexpected.
It also means that while the future may still (eventually) be in renewable energy, that future appears to be much further off than we thought. Most reports indicate that we have enough natural gas to last 100 years. It is also probably very premature for our Federal government to invest in such things as solar and wind energy, because these technologies would seem to have a much longer runway to self-sufficiency than is currently practical. (There are markets for such things, but a lot of it has been subsidized.)
But this new vision of the future does merit a grain of salt and a word of caution, for, as with the estimates so poorly performed in the 1970's, these projections are not guaranteed to come true. Nevertheless, some of these trends have already been gathering steam for a few years and will probably continue for at least a few more years.
The report also says that gains in energy efficiency are expected to be another important factor in the use of energy in the coming years.
Subscribe to:
Posts (Atom)
