Partisan politics holds US economy captive

Taking action is easier said than done, particularly in a polarized political landscape that abhors principled compromise and revels in brinkmanship. According to Ron Haskins of the Brookings Institution, it's been expedient for elected officials to simply "kick the can down the road," a phrase that politicians in Washington use to deride a behavior which they continue to practice. "Never decide today what you can decide tomorrow," Haskins, an expert on budgetary issues, told DW. "That's especially true when you have to make a tough decision that might make some voters mad. And that really is the bottom line here - voters are going to be mad." The looming "fiscal cliff" is strictly a political construction, a consequence of procrastination. Last summer, as the United States sought to increase its debt ceiling in order to continue paying its bills, the Republican-controlled House of Representatives demanded a political commitment to reign in the budget deficit and national debt in exchange for their support. The result was the Budget Control Act, which called for annual cuts of $109 billion - half in defense and half in domestic discretionary spending - over a period of 10 years if a bi-partisan committee failed to come up with a better plan. Unable to strike a politically acceptable balance between spending cuts and revenue increases, Congress is now scrambling to avoid the axe it created. And a series of tax cuts - the largest being those from Bush era - are also set to expire at the end of the year. "The voters say they understand that everybody has to sacrifice. They know the deficit is a huge problem," Haskins said. "But when you ask voters could we cut Social Security, could we cut Medicare, should we increase taxes - you know they don't like any of that." 'Cold Turkey' Unable to come up with a long-term solution to America's fiscal problem out fear of voter wrath, Congress has turned its own political gridlock into a looming economic crisis. In response, businesses are acting cautiously, uncertain of what the economy will bring in the near future."The fiscal cliff has posed a climate of uncertainty that has made the economy weaker in the last half of this year than it otherwise would have been," William Cline, an economist with the Peterson Institute for International economics, told DW. Cline said that businesses have been slower to invest and hire workers, because it's currently unclear what the tax rates will be come 2013, and whether or not congressional indecision will push the economy into recession. The Congressional Budget Office has predicted that should the US step over the fiscal cliff, growth in 2013 will grind to a near halt at 0.5 percent of GDP. Given the current political gridlock, some economists view the fiscal cliff as a bitter but necessary pill that could tame America's long-term fiscal problems in exchange for a short-term recession. "There is a front-end-loaded brief recession, but by the end of the 10-year horizon you're back to pretty much where the GDP would have been and you have considerably less debt than under business as usual," Cline said. "Economists looking closely at this are tempted by the notion, well maybe we should just go cold turkey - take the fiscal cliff." Economic dominoes But for Stormy-Annika Mildner, an expert on American and European economic relations, the idea of letting the US go over the fiscal cliff sounds ominously reminiscent of the 2008 financial crisis. At that time, the government chose to let the investment bank Lehman Brothers go bankrupt, throwing an already shaken economy into a near meltdown. "I would always say that a soft landing for the economy is better than a hard landing," Mildner, who works with the German Institute for International and Security Affairs, told DW. "The argument…reminds me a little bit of fall 2008 when Lehman went down. Where you could also have said the crisis is coming, nonetheless let's get it over with, let's have a hard landing." According to Mildner, the fiscal cliff could have unforeseeable consequences for both a eurozone shaken by its sovereign debt crisis and emerging economies that are beginning to feel the impact of economic malaise in West. The fiscal cliff's combination of blanket tax hikes and spending cuts would likely depress consumption in the US, leading to a drop in demand for goods from its major trading partners like the EU and China. The global economy, in turn, could suffer from "high instability, high insecurity, (and) growth rates would go down." "I'm not so sure that the emerging economies would be strong enough to fill the gap because many of them are also dependent - like China - on the US market," Mildner said. Potential US fiscal crisis Currently, the prospect that a long-term political deal will be struck before the end of the year does not look promising. Although both sides of the political aisle are concerned about the pending automatic defense cuts, some 276 Republican members of Congress have signed a pledge not to raise taxes. And Democrats are unlikely to compromise on spending cuts if revenue increases are not also on the table.