back to recession?
Zanny Minton Beddoes, economics editor for The Economist, was on the radio this
morning, talking about the risk of a double-dip recession. After the
deal to raise the debt ceiling, she puts the odds at fifty-fifty.
"To fall into recession, the economy probably has to be
hit by yet another shock. The worrying thing for me is, there is another
shock coming, and that is in the form of tighter fiscal policy. Over
the coming year the U.S. is going to see quite a sharp fiscal
tightening. Not as a result of the debt deal, per se ... but as a result
of the stimulus measures ending and, particularly if temporary tax cuts
such as the payroll tax cuts, which are due to expire this year, do in
fact expire, then the U.S. gets hit by a pretty hefty fiscal shock.
That, combined with an economy that's already at stall speed, is what
really worries me. And so, yeah, I think the odds are perhaps as much as
one in two over the next year that the economy could go back into
"That's where I find the contours of this debt deal so
discouraging. The U.S., unlike many other countries, actually, has the
room to deal with its medium-term fiscal problem--which, we all know, is
really a problem of entitlements and the need for more tax revenue--in
the medium term, while at the same time cushioning the economy now, when
it's weak. And that could have been enshrined in the debt deal, and it
wasn't. In fact, if anything, the opposite was enshrined."