On the first day of trading after President Barack Obama and Congress pulled the nation back atop the fiscal cliff, the markets ran wild. The Standard & Poor's 500 index soared 2.5 percent, while the Dow Jones Industrial Average rocketed 2.4 percent-more than 300 points.
Either investors know something that most budget analysts fail to see, or this was another example of hope triumphing over experience.
A third, somewhat more cynical explanation would be that the markets knew full well that Washington took only a very small and relatively painless step toward putting its fiscal house in order. No one likes sacrifice, after all, even if it's shared.
It's true that Congress and the president avoided a worse outcome. The nonpartisan Congressional Budget Office had outlined in stark terms what likely would happen if the nation went over the cliff: Gross domestic product would plunge nearly 3 percent in the first half of 2013, and the unemployment rate would spike to around 9 percent. In short, we'd be back in a serious recession.
By sparing nearly all Americans an income tax hike (though not a return to a higher payroll tax rate), the deal does no great harm to the economy in the near term. But by failing to do anything to reform the tax code or tackle the huge structural spending problems that are driving up the national debt, it only postpones the inevitable.
And not for very long. Mandatory across-the-board spending cuts were delayed for only two months. They will hit just as the debt-ceiling deadline arrives-and the showdown over both could become the fiscal cliff on steroids.
Mr. Obama warned Republicans against a reprise of the 2011 debt-ceiling fiasco. "I will not have another debate with this Congress over whether or not they should pay the bills they've already racked up through the laws they have passed," he said.
In reality, he might have little choice-unless he is willing to watch as the economy is put on an uncharted, perilous course.
Making extremely difficult decisions is a responsibility of leadership. So far, no one in Washington has shown much that indicates he or she is up to the task.
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