The Buzz

All markets and investing news all the time

Sandy should be wake-up call to avoid fiscal cliff

October 30, 2012: 12:40 PM ET

This sign was put up in Washington, DC before Hurricane Sandy hit. If Congress and the White House don't reach a deal on the fiscal cliff soon after the election, the government may need to change that sign to SEVERE RECESSION EXPECTED

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

The federal government is going to spend money to help those on the East Coast who are hurt by the effects of Hurricane Sandy. That's what governments are supposed to do, assist people in need.

But politicians shouldn't just respond to crises. They should also act to prevent them when they can. And that leads me to the fiscal cliff.

Of course, there is nothing that any lawmaker could have done to keep the impact of Sandy from being worse than it was. But the looming metaphorical storm of massive spending cuts and big tax hikes can be avoided. All Congress and President Obama need to do after the election is sit down, stop behaving like petulant little children and start acting like leaders.

Considering that the hurricane is very likely to lead to some economic pain for the entire nation, it is even more important than ever for the government to stop what could be an economic catastrophe from unfolding.

Related: Sandy Stimulus? Don't bet on it

But will that  happen? Unfortunately, experts are skeptical.

"I think that Sandy will have little bearing on the lingering issues facing the economy," said Jeffrey Bergstrand, finance professor at the University of Notre Dame's Mendoza School of Business. "We do come together in times of tragedy. But I am not optimistic that the hurricane will change the political issues around the fiscal cliff."

Bergstrand estimates that Sandy could shave about $20 billion off of the nation's gross domestic product in the fourth quarter.  That works out to a couple of tenths of a percentage point of GDP. That may not sound like much, especially since some of the drop may be offset by money spent to rebuild the worst affected areas. But any negative impact is troubling for an economy that's still growing slowly.

And it really is too soon to say just how bad the damage might be, considering that many cities and towns on the East Coast are still trying to figure out how long it will take to clean up and return basic services to normal.

Millions remain without power,  the financial markets are still closed, and airlines have a huge backlog of canceled flights.

Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago, added that the expected jump in holiday shopping could be more muted as well. He said that consumers in places impacted by Sandy may spend more in the coming weeks at retailers like Home Depot (HD) and Lowe's (LOW)  ... at the expense of spending a lot after Black Friday.

So wouldn't it be nice (note to self ... listening to Pet Sounds by The Beach Boys may be good way to cheer up after braving the worst Sandy had to offer) if Congress and President Obama -- regardless of whether or not he is re-elected -- realized that they MUST work together to forge a budget deal that prevents the fiscal cliff as soon as possible?

Related: Will Sandy spark an electoral storm?

Imagine the positive impact this could have almost immediately? Businesses would no longer be able to claim that they have to delay new hiring plans or other investments until 2013. Consumers would be able to have the security of knowing that they won't be hit by higher taxes. Why wait until the last minute? That would be reckless, irresponsible and to be perfectly blunt, downright idiotic.

Still, this is Washington we are talking about.

"The alternative to compromise, taking us over the fiscal cliff, would be a self-inflicted recession," Laurenti said. "Something has to be done or Americans would be furious. It would be stupid, but politicians have been stupid before."

Laurenti added that unless the elections significantly change the status quo, politicians may remain at odds. He thinks there is a decent chance that President Obama will be re-elected, Democrats retain control of the Senate and Republicans continue to have a majority in the House.

In other words, our nation's least and dimmest may decide to wait and clean up the mess after the fiscal cliff instead of doing something to keep us from falling off it.

But maybe .. . just maybe ...  everyone on Capitol Hill and in the White House will take a look out their windows today and realize just how bad of an idea that would be.

Join the Conversation
Fear & Greed
Sponsored by
About This Author
Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! Yes, Urban Outfitters may be finally turnings things around. But $URBN up 17%? Seems a bit excessive, no?
Most Popular
Powered by VIP.