Do Fiscal Cliff Issues Continue to Threaten Long-Term U.S. Stability?

The Motley Fool

January 7, 2013

By Doug Ehrman

While Congress was able to come to a last-minute fiscal cliff deal—really a "past-minute" deal that was backdated—there are still serious concerns facing both the national and global economies. Aside from the fact that the debt ceiling is now looming large on the horizon and government spending has not really been addressed, many of the fiscal cliff issues have simply been pushed a few months down the road. The sequestration cuts have been delayed by two additional months, but given the track record lawmakers have had recently, it is difficult to be optimistic about the prospect of a comprehensive solution, even with the additional time. It is this concern, as well as the potential impact of these cuts, that has led some commentators to tie fiscal cliff issues to a lack of long-term stability for the U.S. economy.

The future is in jeopardy

Sequestration refers to previously agreed-upon budget cuts that will automatically take effect as a part of a bipartisan initiative. The idea behind the initiative was that by creating a severe penalty in the form of the sequestration cuts, Congress would be forced to reach a resolution; shockingly, Congress underestimated its own capacity for pettiness. As a part of the recent fiscal cliff deal, these cuts were delayed for an additional two months.

In a recent article, the dean of the Thayer School of Engineering at Dartmouth, Joseph J. Helble, investigated the dangers of the fiscal cliff on the long-term position of the U.S.: "Allowing sequestration to occur, imposing deep cuts on an already strained science and engineering enterprise, is the surest way to cede our technological leadership. It is the surest way to fail." Mr. Helble points out that sequestration cuts would have resulted in an 8.4% reduction in R&D spending. ...

... Facing the future

While delaying the catastrophic events that were associated with going over the fiscal cliff is a good first step, as Mr. Helble explains, this is not sufficient:

We need these engineers to tackle the enormous challenges we face in energy, the environment, communications, and health care... These challenges won't disappear because we face a 'fiscal cliff.' Solving them requires sustained investment over many years, the kind of investment that many Asian countries, Israel, and the European Union continue to make. R&D spending growth has outpaced the U.S. in those places during the past decade.

In order to remain competitive, the U.S. needs to continue to spend money in the areas that have helped us to be competitive to date.

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