If Congress were serious about fixing the economy, here's one thing they could do right now: Pass a law that allowed us to get the 2012 elections over with as quickly as possible.
It would be a humane gesture toward voters, sparing them another three months of inane campaigning as Barack Obama, Mitt Romney and hundreds of congressional candidates morph into their most outlandish political personas. But more importantly, it would allow us to promptly address several vital economic matters that are basically on hold until it's clear who will be running the country for the next four years.
At the moment, the economy is entering a kind of caretaker state, with businesses and consumers hunkering down to wait out the November elections. There's always some suspense during a presidential race, of course, since a change in administrations often means new economic policies that can create new classes of winners and losers. But the stakes are much higher this year, because of the momentous decisions that must be made in late 2012 and early 2013.
Congress has created a climactic confluence of deadlines that makes the next six months a time of unprecedented economic fragility. At the end of the year, more than $500 billion worth of temporary tax cuts will expire, and beginning in 2013, $100 billion worth of annual cuts in federal spending are due to go into effect as well. If Congress doesn't postpone or dial back those changes, it could slash economic growth by about 4.5 percent.
Then, in early 2013, Washington's borrowing limit will need to be extended again, if the government is going to function normally. The last time that needed to be done, recalcitrant members of Congress nearly forced a default on U.S. obligations, causing the first-ever downgrade of the U.S. credit rating and sending the stock market into a three-month funk.
Congress might make a rare display of competence in coming months and resolve the so-called "fiscal cliff" with some sort of compromise that boosts confidence in the economy. Or, it could botch the whole thing and trigger another recession. Compounding the risk of Congressional ineptitude is the fact that nothing will happen till after the elections, since Democrats and Republicans are both holding out for maximum advantage if their side gains in November. So Washington might save the economy, or it might wreck the economy, and we just have to wait and see what happens.
The waiting game alone is now starting to undermine economic growth. "Expectations of the 'fiscal cliff' ... will keep spending and growth lower through the second half of 2012," writes New York University economist Nouriel Roubini on the Project Syndicate website, echoing the views of many prominent economists. "Most firms and consumers will be cautious about spending--an option value of waiting--thus further weakening the economy."
The Federal Reserve's "beige book" and other anecdotal sources make it clear that businesses are now putting off hiring and other big economic decisions, keeping their powder dry until they know what's going to happen in Washington. Consumers are responding by hunkering down, too, which is pushing down spending and confidence.
Meanwhile, the economy is growing more slowly than most economists predicted so far in 2012, and the unemployment rate seems stuck at a punishingly high level. With the whole economy slowing, it's not likely that unemployment will improve before the elections. So we're basically in a situation where concern about what may be coming could be as damaging as anything that actually happens.
Election Day was set by law long ago as the Tuesday after the first Monday in November. The reason that national elections are held in November is anachronistic: When the law was established in 1845, America was an agricultural nation, and voting day was scheduled after the fall harvest had taken place in most areas, but before a harsh winter had set in, allowing farmers a reasonable window of time to travel to polling places. There's no reason today that Americans need to vote in November; Congress could pass a new law moving up Election Day, in recognition of the urgent need to get it over with and then address our fading prosperity.
That won't happen, needless to say, since Congress is preoccupied with political gamesmanship, and it will soon recess for five weeks of summer vacation. So the 2012 elections will inadvertently depress the economy simply because they stand in the way of needed action. We're used to democracy being messy, but it need not generate the kind of economic damage we're enduring now.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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