13. December 2013
Congressional budget negotiators reached a deal on Tuesday that will prevent a government shutdown in the first quarter of 2014. It also reduces some of the automatic budget cuts next year that were scheduled as a result of the sequester, and it replaces them with more sequestration cuts in later years. This means that the total effect of the sequester on GDP in 2014 has been greatly reduced. And since this agreement also sets the budget levels for fiscal years 2014 and 2015, it means we will not face the likelihood of another government shutdown for at least two years.
Overall, this is a very modest deal that merely postpones the real issues facing this country. Budget negotiators are going to have to meet again in two years and confront all of the same problems that they avoided this time.
It is difficult to be optimistic about this incessant habit of "kicking the can down the road." But there are a few factors that might turn favorable, and thereby justify this decision at this time. One of those factors is that there is a good chance this nation's economy will be stronger in two years than it is at the present time. Yesterday's decision will eliminate some of the uncertainty that business leaders were having about 2014, and this will likely result in significantly stronger confidence levels next year. I for one am more confident in my forecast for GDP growth in the range of 3 percent for 2014.
Another factor that will develop during the next two years is the potential for a change in who controls Congress. We will have a midterm election in 2014, and by the end of 2015 we will have a strong sense of who is running in the big election scheduled for 2016. There is no guarantee that these elections will result in any significant change in this country's leadership, but I expect that it will. So maybe it will actually be easier to make the tough political decisions two years from now. One can hope.
One final set of factors that will play a role in budget negotiations two years from now will be the status of several other major reforms that Congress will debate between now and then. These include, but are not limited to: corporate tax reform, immigration reform, multi-national trade agreements and Obamacare. These issues could dramatically alter the political landscape during the next two years.
For now, moldmakers and most other manufacturers should look forward to improving economic fundamentals in 2014 and 2015. After that, we are going to get another chance to face up to our huge federal budget deficit and the mounting national debt. I can hardly wait.