Commentary: A view from fiscal cliff's other side

The Kansas City StarNovember 19, 2012 

You can go with hope, or you can go with fear.

The title and thrust of the economic forecast issued last Friday by the Greater Kansas City Chamber of Commerce — "Averting the Fiscal Cliff" — was on the hopeful side.

If the politicians in Washington solve this budgetary calamity, the chamber’s forecast predicted, the already improving economic prospects for the United States and the metro area turn decidedly bright.

“We’ll have a recovery that will feel like one,” Frank Lenk, senior research director at the Mid-America Regional Council, told the breakfast crowd.

Earlier, John Ashford, a political strategist from the Hawthorn Group and one of the speakers presenting the chamber’s report, pointed out that it’s not hope but fear that most likely will lead to a fiscal cliff solution.

What should make people around here fearful was the report’s estimate of what the metro economy would look like from the bottom of the cliff.

The forecast, using a model combining estimates from Moody’s Analytics and MARC, took its trend lines from previous warnings by economists. If Washington politicians can’t agree on the future of the Bush tax cuts and the so-called spending sequester, the GDP of the U.S. takes a hit.

One projection in the report assumes that even if the parties reach an agreement, it won’t be consummated until sometime in the first quarter of next year. Call this a bungee jump off the cliff.

If that’s the case, the report says, the economy will slow to a 1.2 percent growth rate, just over half of what it is now.

The report’s most pessimistic projection assumes a stalemate where we fall off the cliff altogether. That would amount to a $730 billion blow to the economy. And a recession next year.

The GDP would shrink 3 percent, roughly a 5 percent swing from the current growth rate.

That decline, of course, would hit home. The chamber’s report cast this most fearfully in terms of jobs.

If the area economy continues its current growth rate without being derailed by the fiscal cliff, it could expect to see 21,200 net new jobs next year and a healthy 33,400 more in 2014. That’s in a total workforce of 1 million in an area that usually creates 20,000 jobs a year.

But plunge over the cliff, the report says, and the area will actually lose 2,100 net jobs next year. In 2014, job growth would rebound, but instead of adding more than 30,000 jobs we would add just 15,300.

All sectors of the area’s economy would suffer.

Adding that all up means this:

Avoiding the fiscal cliff — 54,400 net new jobs.

Not avoiding — 13,200 net new jobs.

That’s 41,200 fewer jobs over the next two years, about the number of folks watching a sold-out ball game at Kauffman Stadium.

Kansas City would be a lesser place.

Fewer houses and cars would be purchased, as well as fewer appliances and less furniture. Fewer seats would be filled at theaters and sports venues, fewer restaurant meals eaten and, frankly, a lot fewer glasses of beer quaffed.

On that last one, maybe not, as the out-of-work drown their sorrows.

You can easily think of additional deleterious effects.

Just past the presidential election, it’s more likely you’re paying attention to the ideological stands the parties cling to, the various flavors of the “grand compromise” being proposed and macroeconomic effects.

The report didn’t offer our gridlocked politicians key advice on the way out of this mess.

But, as the chamber’s forecast makes clear, don’t forget that when the politicians in Washington can’t work things out, more people around you don’t work.

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