President Obama meets with House Speaker John A. Boehner (R-Ohio) at the… (Carolyn Kaster / Associated…)
The government's economic reports should come with the same disclaimer that Wall Street prospectuses do: Past performance doesn't necessarily predict future results. Nevertheless, there's cause for pessimism about 2013 in Thursday's Commerce Department report on U.S. economic growth from July through September.
The report said that the U.S. economy grew at a faster pace than previously estimated -- 2.7% annually instead of 2%. But for the first time since the 2007-08 recession, business investment in equipment and software fell -- by 2.7% (there's that number again), compared with an increase of 4.8% in the previous quarter. That downturn led several economists to warn that businesses were retrenching, not expanding, which bodes ill for the next several months.
The statistics reinforce something corporate executives have been telling Washington for some time: They're afraid of what will happen to the economy if Congress and President Obama don't figure out how to deal with the looming "fiscal cliff," the more than half a trillion dollars in tax hikes and spending cuts set to take effect at the end of the year. And as a result, they're sitting tight and waiting to see how the government responds before putting any more of their dollars at risk.
(As I wrote two weeks ago, the term "fiscal cliff" isn't really apt. I prefer the alternative suggested by reader "Glauxie": "fiscal trench." That phrase employs the right directional metaphor -- downward -- and provides the useful imagery of an economy stuck in a rut.)
Meanwhile, there's a growing chorus of voices on the left urging Obama not to reach a deal with Republicans that cuts spending, especially not spending on Medicare, Medicaid or Social Security benefits. Here's an extreme example.
Obama's opening bid at the negotiations goes almost that far, proposing $1.6 trillion in tax increases, $400 billion in entitlement savings, $1.2 billion in spending cuts already agreed to by Congress and roughly $1 billion and hundreds of billions of dollars in savings from ending the wars in Iraq and Afghanistan. As reader "Rgunnzp81" pointed out in a comment on an earlier blog post, it's not a real budget cut when you agree not to spend money you weren't going to spend anyway.
I'm not as troubled by Obama's stance as House Speaker John A. Boehner (R-Ohio), who accused the president of not being serious about getting a deal. It's the president's first offer, after all. Why should it be a good one?
I'm more disturbed by the apparent sentiment on the left that Washington should do as little as possible now about the long-term budget problems, and focus instead on canceling the looming spending cuts. Doing the latter without providing some kind of plan for addressing the former tells businesses to keep retrenching. The threat of imminent economic disaster might be dispelled, but not the fear instilled by a government incapable of tackling its biggest fiscal problems.
It's encouraging that both sides of the ideological spectrum are emphasizing the importance of boosting economic growth. But one side apparently sees no connection between addressing the government's enduring fiscal problems and persuading businesses to invest more and expand.
The few weeks remaining before the federal government drives into the fiscal trench don't provide enough time for Congress to enact the sort of major legislation needed to start putting the government's fiscal house back in order, such as overhauling the tax code or reforming the Medicare payment system. Instead, it provides just enough time for Congress and the administration to agree on the parameters of a major deal, the details of which would be worked out over the coming year.
If lawmakers find a way to circumvent the tax hikes and spending cuts slated for year's end without agreeing on the framework of a big deal, you can expect to see more reports like the one Thursday from the Commerce Department that show business investment heading in the wrong direction.