Curious Capitalist

Budget Deal Is a Tipping Point for the US Economic Recovery

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Jonathan Ernst / Reuters

House Budget Committee chairman Representative Paul Ryan and Senate Budget Committee chairman Senator Patty Murray hold a news conference to introduce The Bipartisan Budget Act of 2013 at the Capitol in Washington, Dec. 10, 2013.

Whisper it—we may be at a tipping point in the US economic recovery. The announcement that U.S. budget negotiators have reached a provisional two-year deal to avert another government shutdown (which had been set to happen, sans deal, in early 2014) was fantastic news. For the last few years, government has been a headwind, rather than a help, to the recovery. If you’d have stripped the public sector out of the growth numbers over the last year or so, you’d find that the U.S. was already in a 3 percent growth economy, rather than the sluggish “New Normal” of 2 percent that we’ve all gotten used to. If this deal, which still has to be voted on in both the House and Senate, marks a move from gridlocked, partisan politics in Washington to something more constructive, that’s a big deal.

But the real proof of whether we’re truly in a stronger recovery will come toward the end of the first quarter of 2014 when business leaders are asked why they aren’t investing more of the $2 trillion on their balance sheets in the U.S. That would obviously spur job growth and lower unemployment, but executives often point to “fiscal uncertainty,” meaning that they have no idea given the recent history of gridlocked politics what policy will be around things like taxes and regulation. If the budget agreement is a sign that politics as usual is changing, and growth is back as it has been in the last quarter, then businesses should start spending some of that cash.

There are two counter-arguments as to why they might not. First, many smart people, including Alan Greenspan believe that it’s not short-term uncertainty, but long-term worries over how to fund entitlement programs like Medicare, Medicaid and Social Security that confound businesses. As Greenspan pointed out, short-term investments into assets in the U.S. are relatively stable. It’s when you start looking at asset investment 15 to 20 years out that things really fall off a cliff—which points to concerns over how to fund government as entitlements take on a bigger and bigger chunk of the overall budget.

The second issue is that the lack of middle market job creation isn’t really about a lack of investment, but rather a structural shift in the labor market. Six out of the 10 fastest growing job categories in the U.S. are $15-an-hour jobs. Globalization and technology related job destruction means that there’s plenty of work for PhDs and burger flippers, but not much in between. The coming year will be very telling in that respect—if we start to see some business investment and subsequent middle market job creation, we can all rejoice. But if we don’t (which is my bet), then the short-term jump in growth figures won’t mean much. And the long-term unemployed in this country will be feeling some new pain—the new proposed budget deal doesn’t say anything about extending unemployment benefits set to expire at the end of December.

11 comments
RobertNguyen
RobertNguyen

Wonderful news for the nation to see the two parties are working together to serve the nation. 

It's good to fight for your core party 's interests but at the end of the day - agree and move the nation forward.

Leftcoastrocky
Leftcoastrocky

The sequestration has been a headwind on the U.S. economy and will continue to be so but slightly less under the budget deal.

NaveedXVO
NaveedXVO

Are you ****ing kidding? This deal has no effect on the economy. Any Keynesian will tell you it's not enough and anyone concerned about the deficit will tell you IT'S NOT ENOUGH.


This is a betrayal of the GOP base by their elected representatives.


To try to spin this as good economic news is asinine and I wish I could say I thought Time magazine was above this. Of course you're all so enthralled with your masters you can't write an honest story to save your life.

ThomasHall
ThomasHall

Think this deal will past the House GOP baggies who have deliberately sabotaged the weak economy and job creation which the GOP left behind along with massive debt, incoming bills, 20+ years of combined unpaid-for war bills, the $1.7 TRILLION Bush budget deficit and the $2.8 TRILLION, non-jobs-creating, 12+ year Bush tax cuts that mostly went to the rich?

Notice the GOP don't mention the $24 cost to America over their shutdown of the government or the trillion lost to investors in 2011 thanks to their manufactured debt ceiling crisis that downgraded the US credit rating that also cost an additional $19 billion in debt interest.

Remember when the GOP said their focus was jobs and the economy? They lied. Name one jobs or stimulus bill passed. The GOP are still stuck on their failed Reagan-to-present "trickle-down economics" that increased, from 1979-2006-on, incomes for the top one percent by 275% while the Middle Class shrank by 25% and wages for the 99% stagnated.

RobertNguyen
RobertNguyen

Now focus on bringing manufacturing jobs home to sustain the tax paying base...


tom.litton
tom.litton

I think what she is trying to say is that the economy is already at a tipping point, and this deal means the government isn't likely to sabotage it.

BobJan
BobJan

If and when they bring those manufacturing jobs back to the US you can be rest assured they won't be paying high wages. Over the last 30 to 35 years jobs have been lost to technology. Back in 1975 what took 100 people on an assembly line now has 3 to 8 people managing the robotics. Our Nation will never be once again the manufacturing powerhouse in terms of wages. It's just not going to happen. If skilled people (tool makers) (pattern makers) (electricians) (mill wrights) are making 25 to 35 an hour they're surely not going to pay an unskilled to semi skilled worker 20 to 25 an hour. Those days are gone forever. The auto plants that pay the big bucks to their long time assembly workers are paying half that to new hires. And the half pay isn't middle class, buy a house, have 2 cars, and send your children to college wages. It'll never be the same. The corporations have gotten a taste of cheap labor and exorbitant executive pay and it's not going to end anytime soon. As long as government subsidies exist allowing corps to pay low wages and having the corporate loopholes still in place, revenues aren't going up anytime soon. The looting of America by Congress and Corporations continues as long as the sheep keep voting for Democrats and Republicans.

FrancisMulhare
FrancisMulhare

Agreed. The deal lessens the possibility that the government will do anything radically stupid ( like not raise the debt ceiling and thereby cause the US to default on its debt) for at least 2 years. Gratitude for small mercies is in order.

RobertNguyen
RobertNguyen

@BobJan For a highly material consumption nation as the US - not to make anything is not just economic issue but a criminal issue...

tom.litton
tom.litton

Germany has found a way to make it work.  It can be done.