About that “deal” on the “fiscal cliff” and a 4th place finish for 2012 in Calculated Risk’s economic predictions contest

I’ve been putting fewer posts about the economy on this blog as time has worn on. Many of those wonky posts attracted very few readers — and many take considerable time to write.

But I’m still following economic news really closely, and I had another good month — and a good year — in the predictions contest at Calculated Risk:

Here are the winners for the December economic question contest:
1st: Matei Ripeanu
2nd tie: Walt Tucker, OpenID User, Bill Dawers, Joey Cordero

Here are the 2012 Overall winners:
1st: Bill (CR)
2nd: Bryant Dodson
3rd: Billy Forney
4th: Bill Dawers
5th: Walt Tucker

I was a little late to start playing CR’s monthly predictions game, but I think my main competitors — aside from blogger Bill McBride himself — began about the same time I did. McBride had 124 correct answers in 2012 to his own questions. Bryant Dodson was 2nd with 82, Billy Forney was 3rd with 81, and I sneaked up to 4th with 78. Walt Tucker is right behind me with 77 for the year.

I have no idea who these guys are, by the way, but I’ve gotten used to seeing their names . . . If you’re unaware of Calculated Risk, it’s one of the most important blogs about economics and finance. Check out Business Insider’s: The Genius Who Invented Economics Blogging Reveals How He Got Everything Right And What’s Coming Next

I’m doing pretty well compared to other players at Calculated Risk, but I’m only getting less than two-thirds of the predictions correct. Even if one is following data closely, it can often be difficult to predict whether certain ongoing economic estimates will be above or below the expert consensus. Still, I’ve finished in the top 10 in 7 of the 9 months that I’ve been playing. (I got a little lazy with my attention in September and October.)

Anyway, moving on: after much kvetching, the Republican-led House finally allowed a vote Tuesday night on the so-called “fiscal cliff”.

As Suzy Khimm at the Washington Post Wonkblog has detailed:

The nonpartisan Joint Committee on Taxation estimates that the entire package will increase the deficit by $3.9 trillion over 10 years, with a $280 billion increase in 2013 alone. That’s because the JCT is comparing the deal to what would happen if the entire fiscal cliff were allowed to take effect — about $4.5 trillion in deficit reduction over 10 years, according to the Congressional Budget Office. It looks worse if you include interest on the debt and the $30 billion in federal unemployment insurance, which is not offset.

The numbers look better if you compare the deal to a world in which we had kept the tax code the way it was in 2012: Then, the package raises more than $600 billion in additional revenue (and cuts interest payments by about $50 billion).

So, as I’ve said repeatedly, the surest way to address the deficit and debt would have been to allow a bunch of tax cuts to expire and some deep spending cuts to kick in.

But that was never a realistic possibility — and the full effect of those spending cuts and tax increases would very likely have put us back in recession.

Still, I would have loved to see a bigger deal than the one that was passed tonight, which will only bring in about $600 billion in new revenue and which kicks the can down the road regarding the mandated spending cuts. As Khimm notes:

They still have to deal with 10 months of the scheduled $1.2 trillion spending sequester and the debt ceiling, which Republicans want to turn into yet another forcing mechanism for budget cuts.

Of course, the House Republicans who were so angered by the lack of spending cuts in the deal tonight were the same ones who killed the much bigger deal that Boehner and Obama were negotiating in recent weeks. Obama’s offer on the table a couple weeks ago had $1.2 trillion in revenue increases and $925 billion in spending cuts over 10 years. Obama has shown that he is willing to make modifications to the long-term growth of both Medicare and Social Security, but Republicans have twice rejected big deals like those because they didn’t go far enough.

If there’s any good news in this limited deal that all but ensures one political confrontation after another for the rest of 2012, it’s that the modest scope of the income tax rate increases on the highest earners will likely have very little negative impact on the economy.

The expiration of the payroll tax cut — a successful stimulus measure for the last two years under Obama — will certainly be a drag on the economy, however. That heightens the odds for continued slow growth rather than the more robust growth we’d like to see.

Here’s how Grover Norquist saw tonight’s vote: