Zintro experts express opinions on the US fiscal cliff scenario

With all this talk about the US teetering on the edge of a fiscal cliff, we turned to our Zintro experts to learn more about what is behind this concern and it’s impact.

Rick Rybeck, a lawyer and director of a public policy consulting firm, says that the US Congress has failed to reach an agreement about the federal budget, in terms of spending priorities, spending levels, and the mix and amount of taxes required to support that spending. “Part of this failure rests with ideologists that believe all taxes are bad; all regulations are bad; all federal spending is bad (except for defense); and all private-sector spending is good,” he says. “These extreme positions are false. In each instance, one must examine a tax, a regulation, or a spending program on a case-by-case basis to determine whether the net effects are positive or negative. And the devils (and the angels) are in the details.” Rybeck thinks that Congress attempted to convey a seriousness of purpose by creating a self-imposed deadline after which certain events will occur, such as automatic, across-the-board spending cuts to almost all agencies and programs, including defense and the termination of the Bush tax cuts. “The impacts of the spending cuts may eliminate the jobs of government employees, resulting in higher unemployment and higher government spending on safety-net programs,” he says. “Higher taxes will have the greatest impact on low- and moderate-income households. This will lower the standard of living for individual households.” Another important consequence that Rybeck points out is that the world may lose confidence in the US political system’s ability to manage its most basic budgetary functions. This could have negative consequences in terms of reduced business investment and higher interest rates on government debt. “Reduced confidence in the ability of the US government to accomplish essential basic functions could impact US influence in foreign affairs and encourage a more hostile foreign policy environment,” he says. “There are no positive consequences from falling off the fiscal cliff. The point of the fiscal cliff was to create an impending situation of doom to compel ideological folks in Congress to compromise for the sake of the nation’s well-being. We need to do a better job of educating ourselves about economics and elect individuals who know how to run an effective government.”

Michael Keating, an expert in international risk and management, believes that there is a good chance that the world economy may be headed for another recession. He cites the following factors:

  • fiscal crisis inEurope,
  • potential for more war in theMiddle East,
  • increasing cost of energy,
  • decline of investment and wages in the developed world which has a direct impact on growth,
  • continued lack of effective regulation over financial markets,
  • decline in educational standards, and
  • absence of coherent political leadership across the political spectrum.

“If Europe muddles through its current crisis and another global financial meltdown can be avoided, then the possibility of finding new engines of growth may occur in the advanced societies where there are still huge amounts of investment dollars looking for the new next best big thing,” says Keating. “There can be no progress without new ideas. We may have to wait another generation for these to occur. The same old discussions about taxes, debt, and entitlements have their place in the national discourse, but they are not going to solve the mess we are in. Innovation in every sector of society has to be fostered and the old style politics of special interests and myopic ideologies have to disappear; otherwise, we are in for a long, slow decline, as history will show.”

See related story here.

By Maureen Aylward

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