NEW YORK (TheStreet) -- Efforts to avert the "fiscal cliff" offer great drama, but won't solve Washington's budget woes and could precipitate another recession or worse.

The Budget Act of 2011 requires the president and Congress to agree on a nine-year $1.2 trillion deficit reduction program, or annual defense and non-entitlement outlays will be automatically cut $107 billion on Jan. 1. Also, the Bush tax cuts, payroll tax reductions, and other assorted programs expire.

Altogether, $136 billion in annual spending reductions and $532 billion in additional taxes could trigger cataclysmic consequences for the economy. Unemployment would rocket past 15%, state government finances would collapse, homeowners would default on mortgages and hundreds of banks would fail.

To avoid calamity, President Obama and House Republicans will likely agree to raise taxes on high income Americans by $100 billion to $150 billion and curb spending an equal amount. However, those efforts will prove too little, and the economy may still skid into recession -- driving down tax revenues and pushing up the budget gap again.

The annual deficit exceeds $1 trillion -- up from $161 billion in 2007, the year before the financial collapse. Spending is up $1 trillion -- outlays for Social Security, Medicare, Medicaid and other entitlements have increased by an amount equal to the entire 2013 defense budget.

By 2020, runaway entitlement spending will require shutting down the military or crippling many domestic spending programs to head off ballooning deficits.

With Americans living longer, the reasonable solution is to raise the Social Security retirement age to 70, and pattern U.S. health care after other national systems that better contain costs.

The Germans and Dutch spend one-third less on health care, because their governments more aggressively regulate prices, better ration care and spend less on lawsuits.

Democrats, hamstrung by unions, are loath to require Americans to work longer, and are too beholding to tort lawyers and the medical establishment for campaign support -- hence, Obama Care just throws more money into a broken system.

Republicans refuse to admit more competition -- we already have plenty of it among providers, drug and device manufacturers, and insurance companies -- won't adequately slow rocketing costs.

Without raising the retirement age, effective price controls in health care and torts reform, federal spending and the national debt will jet into the stratosphere. Mounting interest payments, investor reluctance to buy U.S. Treasuries and consequent draconian cuts in spending will thrust the U.S. into the crisis now gripping Greece and Spain.

More immediately, tax increases and spending cuts threaten a second recession, because President Obama and Congress failed to address dysfunctions that created the bubble and bust of the 2000s and make the economy perilously dependent on deficit spending.

From 2001 to 2005, the trade deficit doubled to more than $700 billion, thanks to subsidized imports from China, restrictions on U.S. sales into the Middle Kingdom and rising oil prices. This resulting loss of demand for U.S.-made goods and services should have instigated a recession; however, Chinese and Middle East oil exporters stepped up purchases of U.S. securities that helped finance questionable mortgages and other consumer debt.

Americans spent more than they earned, and the boom continued into 2007. When borrowers could no longer service debts, defaults and bankruptcies resulted and the economy crashed.

A huge trade deficit with China and on oil continues, but now the federal government is doing the extra borrowing and spending to sustain domestic demand and modest growth. If budget negotiations slice $200 billion to $300 billion off the deficit, as is likely, GDP will contract $350 to 500 billion and unemployment will rise above 10%.

President Obama and House Republicans indicate no interest in confronting China to force a more equitable trading relationship.

Slashing oil imports enough requires the president to permit more drilling in the Gulf, off the Atlantic and Pacific coasts and in Alaska, and for Republicans to embrace alternative energy sources and aggressive conservation measures. Neither seems likely.

Absent changes in trade and energy policies to boost domestic demand and growth, budget deficit reduction is not possible without another long, hard recession. And absent genuine deficit reduction, the nation is headed for economic chaos by the end of the decade.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

More from Opinion

Musk Goes on Unoriginal Media Tirade

Musk Goes on Unoriginal Media Tirade

What's Happening in Video Games This Week: On the Road to E3

What's Happening in Video Games This Week: On the Road to E3

Wednesday Wrap-Up: Let's Talk About General Electric

Wednesday Wrap-Up: Let's Talk About General Electric

Week of the Women From Finance to Fast Food

Week of the Women From Finance to Fast Food

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney

Tuesday Turnaround: Micron, Autonomous Driving, and J.C. Penney