Guilty as charged. That’s my response to anyone who accuses me of having spilled too much ink writing about what Janet Yellen might do, has done, and will do now that she has raised the Fed funds rate for the first time in a decade. By way of expiation, here is a look at some less-heralded developments in the American economy that may well determine its performance in 2016 and beyond.
Top of the list for immediate impact is the end of austerity. One effect of political stalemate was a “sequester”, something of a freeze on the growth of government spending, a consequence of which was a decline in the federal deficit as a portion of GDP. That freeze has been thawed, largely because Paul Ryan, the new speaker of the House of Representatives, persuaded enough Republican Tea Partiers that compromise is not the first step on the road to perdition, or worse, to involuntary retirement from elected office. The $1.15 trillion budget recently passed satisfies three groups: Republicans because it raises the cap on military spending, the president’s team because it increases funding for entitlement programs and funds some of the promises he made at the Paris conclave on global warming, and the corpocracy because their lobbyists were successful in writing in billions of special tax breaks for casinos, real estate developers, and other very special interests. The price of this pause in partisanship is a bipartisan raid on taxpayers’ wallets, and a tax code further riddled with favors for the already well-heeled. Lawmakers reached a deal because they were willing to “spend some more money,” says Goldman Sachs’ Alec Phillips and, he might have added, (1) it’s not their money, and (2) they will have to borrow it and swell the deficit.
