Sunday, February 3, 2013

Forecast: continued occasional showers of other shoes.

For some reason it’s been hard to raise enough energy to blog for a while.  I think it’s just waiting for the next shoe to drop, the next toxic budget confrontation to play its course.  We have sequester and another debt ceiling debate to go through in the next couple of months, even though sequester, according to pretty much every economic analyst on earth, would create a renewed recession in the United Sates, and failing to raise the debt limit to pay the bills Congress has already created would amount to default, and it would create both national and international financial chaos. Either one would risk catastrophic economic retractions all over the world, and a deep, intractable recession here. Whether we like it or not, the United States Treasury notes and bonds are woven into the deepest fabric of international finance; they are sought out because they are (so far) regarded as the single safest investment available in the world. If the United States chose to default on those bonds it would be an astonishing, and crippling, act of national self-mutilation. And yet there seem to be people in Congress with the power to perform that mutilation who seem blithely unconcerned about the potential results.  But even though this is the thing that most needs saying I’ve already said it many times, and so have many economists with much bigger voices than mine. 

But there are other shoes that will drop soon: at one o’clock Eastern time next Tuesday, for example, the CBO is supposed to publish its January 2013 edition of its Budget and Economic Outlook, which is produced in January and August of each year.  I have no inside information about what’s in it, not even rumors, not even internet rumors.  But if I had to guess (and what else is there to do until it gets here?) I would guess that it will show a much better expected budget outlook than it has for the last few years, both short term and long term.  Short term will improve because the economy is still improving, in spite of last quarter’s small contraction, and because of all the budget cuts and revenue increases that have already been enacted.  And long term, at least as a potential vision of the future, because health care costs have been rising at a much slower pace over the last couple of years.  We can’t know yet whether this is an anomaly or a trend, but the budget outlook should at least mention it, and forecast what would happen if it continued…and what would happen would be a much, much better forecast for Medicare and Medicaid.

So last quarter’s contraction, which was largely due to cuts in the military budget (really!  Look it up!), should have some instructive impact on Capitol Hill, and the CBO report might give the Tea Party caucuses in the House and the Senate some moments of self-reflection.  Maybe it will help them to back away from the sequestrations, the fiscal cliffs, the debt ceiling confrontations and all the other ways these ignorant ideological armies clash in the night at such great cost to their country.

I wish I could say I was hopeful. 

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