Wednesday, October 24, 2012

The Fiscal Cliff

The President, in the third and final debate with Governor Romney, said that sequestration was "not going to happen."  Wonder what he knows that we don't?  In any event, it has already happened in some sense.  The expectation of increased tax rates and of sequestration are already playing into the economy.

Business folks don't wait until January to make decisions.  They are making them now.  Business has ground to a halt in the US, excepting a spurt in housing and the buoyant energy sector.  The combined impact of Dodd-Frank, of Obamacare, of the expiration of the Bush tax cuts, and of the coming sequestration are enough to scare any self-respecting entrepreneur about America's future.

We are already careening down the fiscal cliff. 

The question is, if the President loses his re-election bid, can we climb back out of the abyss.  That depends upon what a President Romney would prioritize.   In the short run, the economy needs the government to step back.   Rolling back some of the draconian measures at the EPA would be a start.  Giving the green light to the Keystone project would be a dramatic symbolic gesture that would also create a lot of high paying jobs almost immediately.

But, to get real prosperity, we will need real tax reform that lowers marginal rates, the repeal or gutting of Obamacare and the repeal or gutting of Dodd-Frank.  Absent these items, the economy is not likely to ever be what it once was.

We've been going through one of the most anti-free market periods in American history (there have been others).  Do Americans still believe in free markets?  Does Romney?

Even a Romney presidency may not reverse the tide against free markets, but who knows?  We can and should hope for the best.