Economic Uncertainty

Republicans like to talk about economic uncertainty as the main reason the US economy is still underperforming, and for once, it seems as though they may be right. Predictably however, even when they are correct, they are still culpable.

What is really holding the economy back is a lack of demand. Households took on too much debt during the good years, and then when things went wrong lost their assets, and now cannot spend enough to really spur growth. The general Republican prescription to this is both outdated and fails to address the problem. Cutting taxes for the uber-rich does nothing to spur economic growth, and even if it meant those people would invest more in their businesses (it doesn't) there still wouldn't be anyone to buy the goods and services being produced.

In the absence of any real data with which to defend supply-sided economics, Republicans have connected a skewed narrative about the economy that allows them to continue advocating failed economic policy even when there is no data to support it. The culprit: uncertainty, a notoriously hard to quantify piece of data.

But now, perhaps much to their chagrin, Republicans are right. Uncertainty is leading to slower growth, and perhaps even a recession. All of this has to do with the so called fiscal cliff over which the economy is poised to fall in January assuming the two parties cannot reach an agreement over spending, which most people assume. If no deal is reached taxes will rise and automatic government spending will go into effect.

This of course would be an economic catastrophe. Higher taxes for most people will significantly lower demand, and government spending is a big economic driver. The combination of the two would be horrible for the economy, and given that there is much uncertainty about whether we will fall over this fiscal cliff businesses are predictably tepid about making investments.

But this uncertainty isn't necessary. It is a direct result of Republican's - primarily the Tea Party's - refusal to compromise. Deficit reduction, they claim, will only be achieved through spending cuts. Higher taxes, even if they are only for the wealthiest Americans, are off the table. This is non-negotiable, and it is the primary cause for both our political and economic stagnation.

This is nonsensical. Higher taxes on the wealthiest Americans have no negative economic impact, but would go a long way towards reducing the deficit. Spending cuts are a necessity, but wantonly gutting spending as Republicans propose would do incredible damage to the economy. Cuts should be targeted and strategic, and must be coupled with higher taxes on top earners. The Tea Party either cannot or will not understand this, which shouldn't surprise anyone.

So now we are at a point where Republicans are right, uncertainty is hampering our economic recovery. That they have created this uncertainty by refusing to compromise is surely lost on them, though hopefully not lost on the public. America deserves better than to be held hostage by our own elected officials. Uncertainty is a part of life, but it does not have to be a reason for our economy slowing or regressing. We would do well to remember why this uncertainty exists come November, and we would do ourselves a favor by reminding our elected officials that we chose them to govern, not to demagogue.