The 112th Congress will be remembered for being asked to address some of the most significant economic and fiscal matters of our time. More to the point, it will be remembered for failing to do so.
Consider Congress’s inexcusable handling of the U.S. debt limit. The stand-off reached a crescendo in the summer of 2011 and will rear its ugly head again in the fall, just in time for November’s Presidential election. The failure to reach a reasonable, pragmatic solution to this relatively straightforward problem has created–and will continue to create–a ripple effect that will have profound consequences for every American.
In the short term, at least, it’s not the economic implications of the failure to pay our debts that’s most worrisome for consumers and the economy–it’s the fact that the debate is the latest and most high-profile example of Congressional irresponsibility. And while the source of the problem is political, its economic consequences are undeniable: the continued bickering, obfuscations, and endless political posturing sap the confidence of business owners, and force them to hold back from taking any steps that could result in meaningful growth and job creation.
Similarly, the dysfunctional Congress undermines the financial markets’ confidence in the U.S. government. As stated in the S&P downgrade report following last summer’s eleventh-hour showdown: “The political brinkmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective and less predictable than what we previously believed.”
Again, a political problem has real economic consequences. If the U.S. debt ceiling is not raised, or even if negotiations drag on and on, international credit rating agencies may downgrade the longstanding AAA+ bond rating of U.S. Treasuries–a rating that makes it possible for the U.S. to borrow at exceedingly favorable rates and helps to attract increasingly global investment capital.
If the U.S. loses its prime credit stature, access to capital will become strained not just for the U.S. government, but also for its largest financial institutions. As a result, U.S. companies (especially small businesses) will find it difficult to obtain bank loans and to maintain their bank lines of credit for financing inventory and receivables. In the absence of available credit, small business operations could grind to a halt. In other words, the negligent behavior of Congress might deliver a devastating blow to small businesses.
While it may be difficult for most business owners to imagine circumstances becoming any more challenging, the truth is, given the range of potential issues that could short-circuit a recovery (European debt, China slowdown, Middle East political unrest/impact on oil prices, Congressional gridlock, etc.), conditions could certainly get worse.
On the consumer front, the failure to address the debt ceiling issue quickly will cause interest rates to rise on everything from mortgages to credit cards to student loans. People will be worried about the prospect of higher expenses (even higher taxes), and, in turn, will limit their spending and delay large purchases.
And the debt ceiling is just one example of an impasse over an issue with significant implications for our economy. Congress must also determine how to address the looming “fiscal cliff”–the array of tax and spending policies (including the Bush-era tax cuts, the Alternative Minimum Tax “patch,” and the automatic spending cuts resulting from last summer’s debt ceiling agreement) set to expire or go into effect at the end of 2012.
As we seek a constructive path forward amid such dysfunction, idealists like me will derive hope and inspiration from the works of President John F. Kennedy:
“Let us begin anew—remembering on both sides that civility is not a sign of weakness, and sincerity is always subject to proof. Let us never negotiate out of fear. But let us never fear to negotiate. Let both sides explore what problems unite us, instead of belaboring those problems which divide us”…”Let us not seek the Republican answer or the Democratic answer, but the right answer. Let us not seek to fix the blame for the past. Let us accept our own responsibility for the future.”
If President Kennedy could negotiate with the Russians regarding nuclear weapons, Congress should be to address these economic issues. Unfortunately, in a continuation of a trend that’s been building in recent years, the current Congress is short on idealists–and long on rigid partisans more concerned with the fallout from a bad 24-hour news cycle than from their irresponsible economic stewardship.
If we want our Congressional representatives to fulfill their oaths of office–to “support and defend the Constitution of the United States against all enemies, foreign and domestic,” we can–and should–implore them to put aside their differences, disregard pledges to interest groups, and get to work on behalf of the American people. We can tell them no vacations, no breaks, no grandstanding until the problem is solved. And if and when we realize that the current bunch can’t address these issues responsibly, we should new elect representatives who can.
Posted July 18, 2012
- NYU Stern Leadership Fellows
- "Preparing For Private Company Mergers & Acquisistions" PWC/Cohen Grigsby
- Goldman Sachs/New York
Presentation to Private Wealth Management
- The Business Growth Expo - Pittsburgh Business Times
- Institute for Entrepren.eurial Excellence (IEE)
- Association For Corporate Growth (ACG)
- Bloomberg: Taking Stock
- Business Talk Radio Network
- Inc. Magazine
- Business Finance Magazine