Mendoza School of Business

Sandy should be wake-up call to avoid fiscal cliff

Published: October 30, 2012 / Author: Paul Monica

The federal government is going to spend money to help those on the East Coast who are hurt by the effects of Hurricane Sandy. That’s what governments are supposed to do, assist people in need.

But politicians shouldn’t just respond to crises. They should also act to prevent them when they can. And that leads me to the fiscal cliff.

Of course, there is nothing that any lawmaker could have done to make the impact of Sandy any worse. But the looming metaphorical storm of massive spending cuts and big tax hikes can be avoided. All Congress and President Obama need to do after the election is sit down, stop behaving like petulant little children and start acting like leaders.

Considering that the hurricane is very likely to lead to some economic pain for the entire nation, it is even more important than ever for the government to stop what could be an economic catastrophe from unfolding.

But will that happen? Unfortunately, experts are skeptical.

“I think that Sandy will have little bearing on the lingering issues facing the economy,” said Jeffrey Bergstrand, finance professor at the University of Notre Dame’s Mendoza School of Business. “We do come together in times of tragedy. But I am not optimistic that the hurricane will change the political issues around the fiscal cliff.”

Bergstrand estimates that Sandy could shave about $20 billion off of the nation’s gross domestic product in the fourth quarter. That works out to a couple of tenths of a percentage point of GDP. That may not sound like much, especially since some of the drop may be offset by money spent to rebuild the worst affected areas. But any negative impact is troubling for an economy that’s still growing slowly.

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Topics: Mendoza