A Reasonable Fiscal Cliff CompromiseScenario No. 1:
A relatively comfortable Electoral College win by Obama in which the Democrats keep control of the Senate -- 40% probability (baseline expectation): The fiscal drag is about 1%-1.5%, and 2013 real GDP growth is 1%-2%. Republicans briefly oppose Democratic policy but quickly acquiesce to Democrat policy initiatives. Stocks are range-bound and have limited downside (S&P 500 1390-1400) and limited upside (S&P 500 1450-1470) over the balance of the year. -- Doug Kass, " More on the Business of Politics"The zeitgeist, expressed in Frank Bruni's editorial in The New York Times over the weekend (and elsewhere), is that the embittered and losing party will claim that their candidate didn't get a fair shake and will hunker down to fight and foil the victor. It is generally assumed by most that political dysfunction, in a country being steadily diminished by it, will ensue as the fiscal cliff approaches in January, 2013, but, as most recognize, a continued and partisan alternative doesn't get us any closer to solving problems that grow it bigger and bigger with time. Dismissed by many as an out-of-character response in addressing the fiscal cliff is a potentially more optimistic scenario expressed in the writings of Bruni:
There's an opportunity here, as we hit the reset button, for Obama to begin a second term by lavishing his attention on areas of general bipartisan agreement or for Romney to begin a first term with a focus on that same territory. It exists. Both parties acknowledge the need for tax reform and agree that we have to figure out a way to keep the spending on Social Security, Medicare and Medicaid in check, especially as the population ages. Both parties accept that a competitive America is an educated America, and would like to see the country make strides on that front. So before we surrender to our worst fears about Tuesday's winner or re-litigate our complaints -- many warranted, some overblown -- against him, shouldn't we first adopt a posture of support and see if he steps forward as a consensus-building problem solver rather than a hostage to special interests and partisan passions? Don't we owe that to him, and even more to ourselves? -- Frank Bruni, "The Far Side of Acrimony," The New York Times (Nov. 3, 2012)As I discussed in Friday's opener, I am increasingly confident that Obama will retain the presidency by a comfortable margin and that the Democrats will keep control of the Senate. The size of the Democratic mandate could serve as a framework result for a less contentious and acrimonious debate over the fiscal cliff (just as a large Romney win would also accomplish).