Just Two?

In his column in The Fiscal Times Bruce Bartlett points to “The Two Issues That Can Bring Down the Economy”. The two issues he highlights are both time-sensitive: the raising of the debt ceiling and the expiration of various tax cuts including the “Bush tax cuts” at the end of the year.

With the economy picking up, the Treasury may get enough extra tax revenue this year to put the debt limit problem off until after the election. I suspect that the expiring tax cuts will simply be extended for another year or two after the election unless Obama loses. In that case, he may veto any extension. Senate Democrats may also filibuster any Republican effort to extend them in 2013, leaving the economy to cope with a large tax increase at a time when it may still be fragile.

Clearly, the optimum solution would be a deal this year to replace the automatic budget cuts now in law with a better mix of spending reductions, as well as some kind of tax reform package to replace the expiring tax provisions and get the tax system on a permanent track. But given time constraints and political gridlock, it is hard to see that happening.

Those are just two of the factors that are within our control that could pose serious problems for the still fragile (and likely to stay that way) economy. There are plenty of other factors that aren’t within our control that could do as much or more harm:

  • Economic slowdown in Europe.
  • Financial crisis in China. China’s own property bubble appears to be collapsing right now.
  • Rising gas prices. There’s a world market for oil and oil consumption by the long list of countries that actually subsidize the price of oil directly (China, India, Saudi Arabia, Iran, Mexico, Nigeria, Venezuela, just to name a few) is doing what you’d expect: increasing sharply.
  • War with Iran. Things may already have proceeded from the deliberative to the implementational and be beyond anybody’s control.
  • The unknown unknowns.

One, more, or all of those may bite over the coming year. Have a nice day.

1 comment… add one
  • Ben Wolf Link

    There’s also the issue of us actually adopting Bartlett’s advice and torpedoing our own economy via spending cuts at a time it is still extraordinarily weak. It amazes me that with over 80 years of economic data since the Great Depression, people who call themselves thinkers take one or two months of tepid growth and decide the nation is back on track.

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