The depressing upshot of this winter’s recovery-that-wasn’t is that the economy will probably limp along through the rest of the year, unless it actually gets knocked down by a collapsing Euro or some other outside force.
Beneath the obvious political and human costs of that volatility, though, lies the potential that everything we think we know about the chaotic post-election legislative landscape is totally wrong.
Right now the basic consensus among lawmakers is that sometime between the beginning of the lame duck session and the early part of 2013, Congress will do something to replace the huge automatic deficit cuts set to kick in at the beginning of the year. What that “something” is depends of course on the outcome of the election, but there’s a shared sense that, whether victorious Republicans slash social spending or victorious Dems break the GOP’s back on taxes, the government will enact policies to reduce the projected deficit right away.
But that conventional wisdom emerged in the false economic dawn of the past six months. In many ways it’s rooted in the assumption that the economy will continue to recover steadily, if not super quickly, over the next few months — and thus be able to absorb budget cuts without stalling out or falling back into recession.
If the assumption proves badly wrong — if unemployment remains above 8 percent and job growth remains anemic — neither party’s leaders are going to be enthusiastic about implementing the austerity measures they say they want. Will Obama stick to his guns about the Bush tax cuts: no full extension under any circumstances? Will the GOP really insist on cutting spending as deeply as last year’s debt limit agreement requires? Some subtle signs point to ‘no,’ and we’ll be taking a closer look at them in upcoming stories.
