The "Fiscal Cliff" would drag America into certain recession

Congress must overcome its partisan rifts.

Irrespective of next week’s election, the fiscal challenges facing the next US government are vast. As the country races towards January’s “fiscal cliff”, the drumbeat warnings of recession have reached fever pitch, with partisan wrangling threatening to derail the sluggish US recovery.

Coming into effect at the dawn of 2013, the “fiscal cliff” represents the confluence of two events: a raft of spending cuts agreed as part of last year’s deal to raise the national debt ceiling and the expiration of Obama-backed extensions of tax breaks introduced in the Bush years.

The fiscal belt-tightening is expected to slash the deficit by almost $500bn – its steepest reduction since 1968. At 5.1 per cent, the rate is comparable to those experienced by Greece, Spain and Italy during their recent austerity drives.

Going over the cliff would almost surely plunge the US into recession, given the fragility of the economy. In May, the Congressional Budget Office warned of a 1.3 per cent contraction if action was not taken.  However, as the cliff looms, gloomier forecasts have predicted annual GDP contractions ranging from 3.6 per cent to 4 per cent.

According to a report issued by the National Association of Manufacturers (NAT), the fiscal shock would result in dramatic job losses of over 5 million by 2014, catapulting the rate of unemployment from the current rate of 7.8 per cent to 11 per cent by 2015.

Naturally, mass job losses and higher federal taxes would have severe effects on consumption. The report predicts that average disposable income is likely to fall annually by 8-10%, hitting the poorest hardest due to cuts in child tax credit and earned income tax credit.

Overall, mass unemployment, plummeting consumption and plaguing uncertainty is likely to weigh heavily on the US economy, stultifying its anaemic recovery unless drastic action is taken.

More pressingly, if Congress fails to raise the debt ceiling before the US hits its $16.4tn statutory debt limit – expected sometime between the election and the end of 2012 – the US would face default – a truly grim prospect. 

The NAT has reported that the approaching “fiscal cliff” has already shaved up to 0.6 per cent from US GDP this year alone, with the tense climate deterring businesses from investing and hiring.

As insecurity gathers momentum, an anti-debt lobby group “Campaign to Fix the Debt” has garnered the support of more than 80 CEOs – including figureheads from General Electric, Microsoft, UPS and JP Morgan – to pressure Congress into overcoming partisan deadlock to hammer out a solution.

But the prospect of this has so far looked bleak; both sides seek different solutions and both sides brook no argument over their staunch positions. One particular impasse stems from the Democrats’ drive to introduce tax cut extensions to all but the highest-earners, much to the chagrin of the Republican contingent. Likewise, Republicans want cuts to health and welfare, whilst Democrats are adverse to cuts in entitlement spending.

Just last summer, such “political brinkmanship” was cited by Standard and Poor’s in their downgrade of the US economy from AAA to AA+, as political wrangling overshadowed debate over the federal debt ceiling.

“We could have a recession in my view that is significantly greater than [anyone] is forecasting today, because it’s an indictment of our ability to govern”, said Dave Cote, leading member of Campaign to Fix the Debt.

Even the current political stalemate is conquered, extended tax cuts and deferred sequestration would hold their own economic perils. This path would only curtail the deficit by $90bn, contrary to the $500bn reduction if America does indeed “go over” the cliff.

Therein lies the trade-off: foster the recovery or confront the debt head-on. Most likely, following pleas from prominent economists such Federal Reserve chairman Ben Bernake, Congress will pursue a medium-term plan that privileges the recovery whilst tackling the debt, but time will only tell.

Overall though, inaction is most certainly not an option. The sudden jolt of the “fiscal cliff” could shock the economy into freefall, dragging the global economy down with it.

As the US stares into the abyss, Congress must – and most probably will – overcome its partisan fissures for the sake of America’s economic future.

Thus is the exigency of the times.

Clouds gather over Capitol Hill. Photo: Getty

Alex Ward is a London-based freelance journalist who has previously worked for the Times & the Press Association. Twitter: @alexward3000

Photo: Getty
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The Prevent strategy needs a rethink, not a rebrand

A bad policy by any other name is still a bad policy.

Yesterday the Home Affairs Select Committee published its report on radicalization in the UK. While the focus of the coverage has been on its claim that social media companies like Facebook, Twitter and YouTube are “consciously failing” to combat the promotion of terrorism and extremism, it also reported on Prevent. The report rightly engages with criticism of Prevent, acknowledging how it has affected the Muslim community and calling for it to become more transparent:

“The concerns about Prevent amongst the communities most affected by it must be addressed. Otherwise it will continue to be viewed with suspicion by many, and by some as “toxic”… The government must be more transparent about what it is doing on the Prevent strategy, including by publicising its engagement activities, and providing updates on outcomes, through an easily accessible online portal.”

While this acknowledgement is good news, it is hard to see how real change will occur. As I have written previously, as Prevent has become more entrenched in British society, it has also become more secretive. For example, in August 2013, I lodged FOI requests to designated Prevent priority areas, asking for the most up-to-date Prevent funding information, including what projects received funding and details of any project engaging specifically with far-right extremism. I lodged almost identical requests between 2008 and 2009, all of which were successful. All but one of the 2013 requests were denied.

This denial is significant. Before the 2011 review, the Prevent strategy distributed money to help local authorities fight violent extremism and in doing so identified priority areas based solely on demographics. Any local authority with a Muslim population of at least five per cent was automatically given Prevent funding. The 2011 review pledged to end this. It further promised to expand Prevent to include far-right extremism and stop its use in community cohesion projects. Through these FOI requests I was trying to find out whether or not the 2011 pledges had been met. But with the blanket denial of information, I was left in the dark.

It is telling that the report’s concerns with Prevent are not new and have in fact been highlighted in several reports by the same Home Affairs Select Committee, as well as numerous reports by NGOs. But nothing has changed. In fact, the only change proposed by the report is to give Prevent a new name: Engage. But the problem was never the name. Prevent relies on the premise that terrorism and extremism are inherently connected with Islam, and until this is changed, it will continue to be at best counter-productive, and at worst, deeply discriminatory.

In his evidence to the committee, David Anderson, the independent ombudsman of terrorism legislation, has called for an independent review of the Prevent strategy. This would be a start. However, more is required. What is needed is a radical new approach to counter-terrorism and counter-extremism, one that targets all forms of extremism and that does not stigmatise or stereotype those affected.

Such an approach has been pioneered in the Danish town of Aarhus. Faced with increased numbers of youngsters leaving Aarhus for Syria, police officers made it clear that those who had travelled to Syria were welcome to come home, where they would receive help with going back to school, finding a place to live and whatever else was necessary for them to find their way back to Danish society.  Known as the ‘Aarhus model’, this approach focuses on inclusion, mentorship and non-criminalisation. It is the opposite of Prevent, which has from its very start framed British Muslims as a particularly deviant suspect community.

We need to change the narrative of counter-terrorism in the UK, but a narrative is not changed by a new title. Just as a rose by any other name would smell as sweet, a bad policy by any other name is still a bad policy. While the Home Affairs Select Committee concern about Prevent is welcomed, real action is needed. This will involve actually engaging with the Muslim community, listening to their concerns and not dismissing them as misunderstandings. It will require serious investigation of the damages caused by new Prevent statutory duty, something which the report does acknowledge as a concern.  Finally, real action on Prevent in particular, but extremism in general, will require developing a wide-ranging counter-extremism strategy that directly engages with far-right extremism. This has been notably absent from today’s report, even though far-right extremism is on the rise. After all, far-right extremists make up half of all counter-radicalization referrals in Yorkshire, and 30 per cent of the caseload in the east Midlands.

It will also require changing the way we think about those who are radicalized. The Aarhus model proves that such a change is possible. Radicalization is indeed a real problem, one imagines it will be even more so considering the country’s flagship counter-radicalization strategy remains problematic and ineffective. In the end, Prevent may be renamed a thousand times, but unless real effort is put in actually changing the strategy, it will remain toxic. 

Dr Maria Norris works at London School of Economics and Political Science. She tweets as @MariaWNorris.