Skip to main content

Economy will limp along in 2013

By James K. Galbraith, Special to CNN
updated 5:24 PM EST, Tue January 1, 2013
A job fair in December in New York City.
A job fair in December in New York City.
STORY HIGHLIGHTS
  • James Galbraith: I do not foresee economic disaster in 2013
  • Galbraith: The economy will limp along at best, despite raising taxes on the rich
  • He says the job market will continue to be lousy for young and old alike
  • Galbraith: If social insurance programs are cut, the middle class will suffer

Editor's note: James K. Galbraith is the author of "Inequality and Instability: A Study of the World Economy Just Before the Great Crisis" (Oxford University Press). He teaches at the University of Texas at Austin.

(CNN) -- Let's start with the good news. If the House passes the deal, the fiscal cliff melodrama will be over. Under the spur of this contrived crisis, Congress will let tax rates rise (just a bit) on the very wealthy, extend unemployment insurance, and defer the sequesters for a couple of months. Good.

Even better, there have been no new cuts (yet) to Social Security, Medicare or Medicaid. Would those who wasted December predicting disaster if these programs were not gutted by Christmas now in penance please be quiet for at least six months? Could we instead spend those months doing something useful, like raising the minimum wage?

Drumbeat against social insurance

James K. Galbraith
James K. Galbraith

Sadly, no. The first thing we can be sure of is that the Beltway drumbeat against social insurance will start again. The next pretext will be the debt ceiling, which will now occur alongside the new sequester deadline in late February, shifting leverage to the right. It seems the president has decided that the Constitution, which orders that all public debts shall be paid, is optional on this point. So it will be up to Sen. Harry Reid and his majority to battle on in defense of our most vital programs, so deeply hated by the eternal enemies of the New Deal.

Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us @CNNOpinion on Twitter. We welcome your ideas and comments.



It's up to the House: fiscal cliff faces Republican-controlled territory

Economy will limp along

Meanwhile, we will discover that raising taxes on the rich makes no difference. Interest rates, already near zero, will not go down. Consumer spending and business investment will not be changed. Keeping middle class income taxes and the alternative minimum tax from rising is also a no-change step; same goes for the one-year reprieve for unemployment insurance.

None of these measures will increase total private spending, which would have been useful right now. And the one tax break that no one tried hard to save -- namely, the expiring payroll tax holiday -- will cut into spending power where it hurts. Given that drag, the economy will limp along at best.

Where are the jobs?

Barring a new recession -- now unlikely -- the Fed's new 6.5% unemployment rate target will be approached the hard way: Not with new jobs, but mainly because workers desert the labor force, take retirement, or just drop out. This will be lousy for young and old alike.

Household finances could improve

Most Americans will continue to pay down mortgages, even where they remain larger than the value of their homes. They will do it because they consider it right and honest to do so. Some, unable to hang on, will default and be foreclosed. The bankers whose frauds ruined the middle class will go mostly unpunished, except perhaps by civil plaintiffs.

Still, whatever happens, household finances will improve slowly so long as the safety net (which is the federal budget deficit) continues to support total incomes. Yes, you read that correctly about the deficit. We would be much worse off without it. As of today, the big risk to the economy is that austerity measures so far avoided, including cuts in Social Security, Medicare and Medicaid, will be imposed to get past the debt ceiling and to again defer the sequesters. If that happens, it would slow the economy and squeeze the middle class even more.

5 things to know about the fiscal cliff

Europe's crisis will worsen

In Europe, where the fiscal fools are in complete control, things will get worse. Europe does not have a government that can run a deficit covering the entire union. So the pain falls on Greece, Spain, Portugal, Ireland and Italy. These countries are being forced to damage and even destroy themselves with spending cuts and tax increases, mainly to satisfy the Germans. And the German powers-that-be will argue that Germany too must now face "iron austerity" even though it has no financing or competitiveness problem. If that argument prevails, the European Union will take another step toward ruin. The model of Yugoslavia comes to mind.

China may be OK

China remains the exception, since it is governed by pragmatists who are not afraid to run budget deficits when needed. But Chinese people are impatient with the collateral damage from growth: Inequality, environmental stress, and especially corruptions. Chinese growth is vulnerable to rising energy prices, as is Japan.

I do not foresee economic disaster in 2013. But forces that could produce disaster -- mainly attacks on our most vital and successful social programs in the name of deficit reduction -- are at work almost everywhere. So it's a good year to reflect on what has already gone wrong by looking first at what is wrong and changing our thinking.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of James K. Galbraith.

ADVERTISEMENT
Part of complete coverage on
updated 12:11 PM EDT, Fri August 29, 2014
Leon Aron says the U.S. and Europe can help get Russia out of Ukraine by helping Ukraine win its just war, sharing defense technologies and intelligence
updated 1:24 PM EDT, Fri August 29, 2014
Timothy Stanley the report on widespread child abuse in a British town reveals an institutional betrayal by police, social services and politicians. Negligent officials must face justice
updated 9:06 PM EDT, Fri August 29, 2014
Peter Bergen and David Sterman say a new video of an American suicide bomber shows how Turkey's militant networks are key to jihadists' movement into Syria and Iraq. Turkey must stem the flow
updated 11:16 AM EDT, Thu August 28, 2014
Whitney Barkley says many for-profit colleges deceive students, charge exorbitant tuitions and make false promises
updated 10:34 AM EDT, Fri August 29, 2014
Mark O'Mara says the time has come to decide whether we really want police empowered to shoot those they believe are 'fleeing felons'
updated 10:32 AM EDT, Thu August 28, 2014
Bill Frelick says a tool of rights workers is 'naming and shaming,' ensuring accountability for human rights crimes in conflicts. But what if wrongdoers know no shame?
updated 10:43 PM EDT, Thu August 28, 2014
Jay Parini says, no, a little girl shouldn't fire an Uzi, but none of should have easy access to guns: The Second Amendment was not written to give us such a 'right,' no matter what the NRA says
updated 1:22 PM EDT, Sat August 30, 2014
Terra Ziporyn Snider says many adolescents suffer chronic sleep deprivation, which can indeed lead to safety problems. Would starting school an hour later be so wrong?
updated 9:30 AM EDT, Fri August 29, 2014
Peggy Drexler says after all the celebrity divorces, it's tempting to ask the question. But there are still considerable benefits to getting hitched
updated 2:49 PM EDT, Fri August 29, 2014
The death of Douglas McAuthur McCain, the first American killed fighting for ISIS, highlights the pull of Syria's war for Western jihadists, writes Peter Bergen.
updated 6:42 PM EDT, Tue August 26, 2014
Former ambassador to Syria Robert Ford says the West should be helping moderates in the Syrian armed opposition end the al-Assad regime and form a government to focus on driving ISIS out
updated 9:21 AM EDT, Wed August 27, 2014
Ruben Navarrette says a great country does not deport thousands of vulnerable, unaccompanied minors who fled in fear for their lives
updated 9:19 AM EDT, Wed August 27, 2014
Robert McIntyre says Congress is the culprit for letting Burger King pay lower taxes after merging with Tim Hortons.
updated 7:35 PM EDT, Tue August 26, 2014
Wesley Clark says the U.S. can offer support to its Islamic friends in the region most threatened by ISIS, but it can't fight their war
updated 7:26 AM EDT, Wed August 27, 2014
Jeff Yang says the tech sector's diversity numbers are embarrassing and the big players need to do more.
updated 4:53 PM EDT, Tue August 26, 2014
America's painful struggle with racism has often brought great satisfaction to the country's rivals, critics, and foes. The killing of Michael Brown and its tumultuous aftermath has been a bonanza.
updated 4:19 PM EDT, Tue August 26, 2014
Ed Bark says in this Emmy year, broadcasters CBS, ABC and PBS can all say they matched or exceeded HBO. These days that's no small feat
updated 3:19 PM EDT, Tue August 26, 2014
Rick Martin says the death of Robin Williams brought back memories of his own battle facing down depression as a young man
updated 11:58 AM EDT, Tue August 26, 2014
David Perry asks: What's the best way for police officers to handle people with psychiatric disabilities?
updated 3:50 PM EDT, Mon August 25, 2014
Julian Zelizer says it's not crazy to think Mitt Romney would be able to end up at the top of the GOP ticket in 2016
updated 4:52 PM EDT, Mon August 25, 2014
Roxanne Jones and her girlfriends would cheer from the sidelines for the boys playing Little League. But they really wanted to play. Now Mo'ne Davis shows the world that girls really can throw.
updated 12:29 PM EDT, Mon August 25, 2014
Peter Bergen and Emily Schneider say a YouTube video apparently posted by ISIS seems to show that the group has a surveillance drone, highlighting a new reality: Terrorist groups have technology once only used by states
updated 5:04 PM EDT, Mon August 25, 2014
Kimberly Norwood is a black mom who lives in an affluent neighborhood not far from Ferguson, but she has the same fears for her children as people in that troubled town do
updated 5:45 PM EDT, Fri August 22, 2014
It apparently has worked for France, say Peter Bergen and Emily Schneider, but carries uncomfortable risks. When it comes to kidnappings, nations face grim options.
updated 1:27 PM EDT, Tue August 26, 2014
John Bare says the Ice Bucket Challenge signals a new kind of activism and peer-to-peer fund-raising.
updated 8:31 AM EDT, Fri August 22, 2014
James Dawes says calling ISIS evil over and over again could very well make it harder to stop them.
updated 9:05 PM EDT, Sat August 23, 2014
As the inquiry into the shooting of Michael Brown continues, critics question the prosecutor's impartiality.
updated 6:47 PM EDT, Fri August 22, 2014
Newt Gingrich says it's troubling that a vicious group like ISIS can recruit so many young men from Britain.
updated 10:50 AM EDT, Thu August 21, 2014
David Weinberger says Twitter and other social networks have been vested with a responsibility, and a trust, they did not ask for.
updated 7:03 AM EDT, Fri August 22, 2014
John Inazu says the slogan "We are Ferguson" is meant to express empathy and solidarity. It's not true: Not all of us live in those circumstances. But we all made them.
updated 8:23 AM EDT, Fri August 22, 2014
Retired Lt. Gen. Mark Hertling says he learned that the territory ISIS wants to control is amazingly complex.
updated 3:51 PM EDT, Wed August 20, 2014
Cerue Garlo says Liberia is desperate for help amid a Ebola outbreak that has touched every aspect of life.
updated 1:42 PM EDT, Thu August 21, 2014
Eric Liu says Republicans who want to restrict voting may win now, but the party will suffer in the long term.
updated 11:38 AM EDT, Thu August 21, 2014
Jay Parini: Jesus, Pope and now researchers agree: Wealth decreases our ability to sympathize with the poor.
updated 8:00 AM EDT, Thu August 21, 2014
Judy Melinek offers a medical examiner's perspective on what happens when police kill people like Michael Brown.
updated 6:03 PM EDT, Tue August 19, 2014
It used to be billy clubs, fire hoses and snarling German shepherds. Now it's armored personnel carriers and flash-bang grenades, writes Kara Dansky.
updated 1:27 PM EDT, Wed August 20, 2014
Maria Haberfeld: People who are unfamiliar with police work can reasonably ask, why was an unarmed man shot so many times, and why was deadly force used at all?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT