Politicians and economists continue to try to figure out what effects the fiscal cliff will have on consumer spending and business activity as a possible recession looms. Even if there is a compromise, with taxes and federal spending remaining near current levels, an agreement may only cover the first several months of 2013, as Congress and the president bicker over the debt ceiling and the nation’s budget as it will look for the balance of 2013 into 2014.
The problem with any forecast is that, with the cliff only six weeks away, its potential effects have become splintered and hard to read. When the event was several months off, research could show what might be expected in terms of economic activity. More highly taxed consumers would retreat as they did during the previous recession. Businesses would lay off people and capital spending would contract. But any panic about the event was a ways off and there was a reasonable chance to avert it.
With the election over and both parties sprinting to solve the fiscal cliff problem, consumers and businesses are more at risk, or will be in their own minds, about what will happen on January 1 and in early 2013. The ability to take a yardstick to opinion is harder than it was several months ago, because the confusion about what will happen and the worry become magnified as people and business attempt to decide what course to take. That leaves out, of course, those who already have decided.
The primary source of anxiety remains whether there can be any compromise at all, and if so, whether it will keep taxes low. Some undetermined set of people and companies will wait the process out. Others will only wait a few more weeks. No matter what the outcome, there almost certainly is erosion of the ranks of those who are optimistic.
The only way to tell what the real effects of the fiscal cliff will have on spending is to go door-to-door, and it is too late for that.
Douglas A. McIntyre
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