At least, it will if Congress and the White House don't act. It would be, as Princeton economist Alan Blinder put it recently in The Wall Street Journal, "a disaster for the United States." So surely it must be all hands on deck in Washington, right?
You know where I'm going with this. A rational government would be in high gear, yet what do we see? The House has worked for roughly a third of 2012 so far, and will be out of Washington campaigning or tending to constituents for half the remaining weeks of the year. The Senate, meanwhile, has been working on several bills, but the two houses are largely ignoring the fiscal meltdown.
The looming crisis is a result partly of bad timing -- the tax cuts enacted under George W. Bush are due to expire and Congress faces yet another vote on raising the debt ceiling -- and partly a result of earlier decisions to defer hard decisions. The temporary payroll tax cut, which members of Congress went to the mat over just a few months ago, will expire.
Unemployment benefits are due to be cut back. A, of course, the failure of the congressional "Supercommittee" to agree on a deficit-cutting deal has triggered $1.2 trillion in spending cuts. Those cuts are scheduled to go into effect starting of the turn of the year.
Most commentators in Washington agree that Congress and the President will eventually act. A few optimists hope for a "Grand Bargain" that would resolve Democrats' and Republicans' differences over taxes, spending and entitlements. But the consensus in Washington seems to be that policy-makers will dither until after the November elections. Then, in a desperate scramble -- with a lame-duck Congress and either a lame-duck or a new president -- they'll find some way of postponing the hard decisions for yet a few more months.
There is a very real cost to this delay. It's not a good time to be anyone dependent on the federal budget, and that includes millions of people and 28 percent of the American economy. Pentagon planners and transportation program managers have no idea what their budgets will be. Federal contractors don't know if funds will be available to pay them. People receiving unemployment benefits have to worry they'll run out soon. Every taxpayer faces an increase in income taxes.
Nobody knows if we will be able to pay our debts as a country, and everyone involved in the financial markets has to worry about what happens if Congress by its inaction allows the economy to contract sharply. The uncertainty will surely erode the confidence of markets and investors, and even worse, of business-people. As PIMCO's Mohamed El-Erian recently wrote in The Washington Post, "[P]rolonged political inaction is likely to encourage companies to postpone building plants and purchasing equipment and to discourage them from hiring."
We've never had a situation like this, where so clearly ahead lies a fiscal crisis with enormous implications, yet Congress cannot enact a comprehensive annual budget and blithely assumes that its leaders and the White House will eventually get around to acting -- but meanwhile, its members will go home on recess. If the CEO of a major enterprise saw problems of this magnitude looming, its hard to imagine he'd call his employees together and tell them all to go on vacation.
Reducing the deficit is difficult, but can't we get our political leaders to act before we go over the fiscal cliff? The only way to do it in a sluggish economy is by raising taxes and cutting spending. Both are unpopular, and our leaders can't seem to summon the courage to confront hard choices even as we move inexorably closer to a fiscal reckoning. It all makes me wonder if the skeptics who say our government work are right.
Lee Hamilton is Director of the Center on Congress at Indiana University. He was a member of the U.S. House of Representatives for 34 years.