NEW YORK (TheStreet) -- Now that the presidential election is finally over, the next installment of political theater from Washington, D.C. is upon us: behold "The Fiscal Cliff."
President Obama's reelection, which apparently came as a surprise to some despite all the data predicting it, inspired a few days of selling in the stock market. Investors, however, are also concerned about "The Fiscal Cliff" -- the media's dramatic term for the expiring tax cuts and unemployment benefits coupled with across-the-board cuts in military and domestic programs that are set to take effect after New Year's if the federal government isn't able to broker a deal beforehand that would avert it all.
I don't mean to make light of our nation's serious fiscal challenges, but forgive me for being a bit skeptical about this arbitrary deadline that has been invented out of thin air by our fearless leaders. If this Washington showdown is anything like the disgraceful debt-ceiling negotiations that took place last year, when Congressional Republicans threatened to default on America's financial obligations unless they got their way, then please wake me up when it's all over. I can't stomach another round of this foolishness.
The selloff that occurred during last year's debacle turned out to be a great buying opportunity in the stock market, and I suspect the same will be true again this year. Yes, the policy outcomes that are scheduled to take place if a deal can't be reached are real, and they could do serious damage to our already precarious economic recovery, but I think it's highly unlikely that we'll be heading off any real fiscal cliffs anytime soon.
The outlines for a deal are clear: taxes for high-income earners ought to go up, and the long-run costs of entitlement programs and the Pentagon and national security budgets ought to go down. This, in a nutshell, is the sensible, balanced approach that President Obama has been pursuing.
My approach, if we were a dictatorship and I was in charge, would be different, but this is not a dictatorship. It's a democracy with a divided electorate, and this is the deal on the table. The results of the election show that it's a reasonable compromise.
Unfortunately, our elected representatives in Washington, D.C. have displayed a proclivity for avoiding anything that is reasonable like the plague. Hopefully, the election has brought them to their senses, but I'm not holding my breath. At the very least, though, I expect some sort of deal will be reached that avoids "The Fiscal Cliff" -- at least one that pushes off any real decisions to the next arbitrary and toothless deadline.
In the meantime, how about that buying opportunity? When the stock market bottomed during last year's deficit histrionics, the
was down around 1,100. We're now above 1,379. Shares of
were below $400. They're now trading above $547 -- even after a recent rout. Shares of
went below $500. They're now trading over $663, and the Internet search giant has also struggled of late.
I'm not saying this performance is going to be repeated during this installment of federal deficit negotiations, although it's certainly possible. I just want to put all this hullabaloo in perspective. There's a tendency for people to feel like the sky is falling during these episodes as tempers flare and markets gyrate. It's important, if you're making investment decisions, to be able to see beyond the headlines.
The basic problem that we're facing as a country is simple: we have a debt problem, but at the same time, we have an economy problem. Fixing one problem through government policy, in the short-term at least, typically requires adding to the other problem. Unfortunately, we waited until a financial crisis mired our economy in an epic slump to start treating our fiscal challenges seriously, so here we are. There are no good options.
Perhaps the most maddening aspect of all this is that the very people leading the charge to add to the deficit before the crisis through tax cuts and spending binges of various flavors have now suddenly morphed into our nation's leading fiscal scolds. Common sense, therefore, dictates that all this is more about political posturing than anything else, and that leaves me feeling particularly ambivalent about "The Fiscal Cliff" and all the hysterics surrounding it.
One important point: effective tax rates on high-income earners are at historic lows, and it should be abundantly clear to everyone by now that the Bush tax cuts were not wise policy moves -- especially at a time when the U.S. is prosecuting multiple foreign military adventures. The Bush tax cuts are a major policy driver of the current federal budget deficits, and the authoritative studies show that the economic impacts of removing them would be small.
Polling data suggests a solid majority of Americans support raising taxes on high-income earners back to normal levels, and Obama's reelection reinforced this fact. Accusations of "class warfare" don't pass the smell test with me -- especially at a time when many prominent, respected and wealthy Americans are lining up in favor of this move.
If our country's opposition party, after losing the election, is willing to sink the U.S. economy -- even when the president is offering them a real compromise on the spending side -- to preserve policy that was clearly a mistake in the first place, then our problems are much larger than "The Fiscal Cliff."
At the time of publication, the author was long AAPL and GOOG.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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