Stock markets around the world are ‘surging’ this
morning, investors venting their relief that the last-minute agreement
negotiated in Washington
will save the American economy from plunging over the so-called fiscal cliff. I wonder what it is that they know and that I’m
unable to fathom.
Why, one has to ask, was such a big deal made about
what turns out to be a very small deal?
What the two Houses of Congress have come up with to avert what we were
told might have been an economic catastrophe of unimaginable magnitude turns
out to be a mixture of compromise and deferment, one that could have been
negotiated by an ad hoc committee of first-year MBA students. It’s true that MBA students don’t have to
think about their re-election prospects, but even so, the deal negotiated in
the wee small hours of New Year’s Day hardly smacks of a disaster-averting
landmark of which the politicians can be proud.
They include President Obama himself, who at times seemed to be as confused
between partisanship and leadership as everyone else in the body politic.
In matters of tax-raising, the United States Congress
has increased the earnings threshold for a (slight) tax increase from $250,000
a year to $450,000 a year and raised payroll tax from 4.2 to 6.2 per cent. The former affects a mere one per cent of
working Americans, fiscally irrelevant except as a gesture. The later measure will hit the entire working
population, and raise significant income, but it will hardly persuade Americans
to spend more to get the economy moving again.
On the spending side, the cuts that were due to take
effect on New Year’s Day have been put off for a couple of months, to enable
the Congress to debate them all over again.
This presumably means another cliff-hanging moment some time in March.
Investors are entitled to feel relieved today, but
only in the manner of someone with a brain tumour who is relieved by taking a
couple of headache pills. Meanwhile, the
tumour – for which read deficit – continues to expand.
American politicians are far from alone in their
willingness to dispense palliatives and reluctance to perform surgery. Our very own Chancellor of the Exchequer
proves almost daily in the House of Commons to be a master of illusion in
matters of deficit-reduction, as the party occupying the benches opposite howls
in protest on behalf of the masses swarming through the shopping malls.
I fear that the surgical imperative can’t be put off
much longer. But what do I know? What do any of us know?
And that includes the denizens of Wall Street, which,
without pausing to consider the irony, will no doubt join the celebration later