This article is by Ram Charan, an adviser to CEOs and corporate boards whose latest book, Global Tilt, will be released by Crown this winter.
Will Washington act?
We are now less than two months from the fiscal cliff, and there is no sign of action from Congress or the president, despite the reality that inaction will plunge the United States into a recession. Leaders in both parties have positions that are completely frozen, causing gridlock and a dangerous game of political poker.
It is as if our country is on a train chugging toward a huge cliff, and the leaders of each party can’t agree on who should be the conductor. The alarming thing for us in the train cars is that not only do we have little control over this stalemate but it is hard to imagine the two sides coming together to create a sensible solution between now and the new year.
Last week, in a highly unusual action, 80 chief executives of U.S. corporations joined in a formal protest at the situation, signing a document pressuring Congress to reduce the federal deficit and begin spending cuts. Behind the scenes, the CEOs I speak with are genuinely alarmed about the fiscal cliff. One has told me he is working day and night to get Congress and President Obama to act.
But at this stage, with less than 60 days remaining, what action is possible? The reality is that there is not enough time left to create a viable long-term solution before January 1. Sure it is conceivable that both parties could hurriedly work out something in this period, but would it be a truly viable compromise or a solution that we would come to regret over time?
Still, I believe the fiscal cliff is not inevitable. I want to offer Congress and the president a solution that is viable in this short period and gives a full year to execute sensible action. Usually the U.S.’s actions set the tone for other countries. Right now we are lagging behind.
I propose that Congress freeze all expenses by the federal government, including entitlements, at 2012 calendar year levels, without exceptions. Furthermore, Congress should postpone the fiscal cliff legislation to January 1, 2014. This bold move by our country’s leaders will help boost America’s faith in its leaders to enact serious economic policy while also proving to the rating agencies that Washington is capable of positive, decisive movement. It will also prevent the serious job loss that would result from pushing America into a recession. It should appeal politically to legislators given that it freezes, but does not cut, entitlement spending.
This solution is not painless, but I believe it will create less pain and shared pain. A freeze on the fiscal cliff legislation will allow the new Congress and the president to begin anew in January. They will be able to attack the issues with a fresh approach and in the context of a new global and national financial reality. They may be more motivated to solve the complex economic issues now that they are forced to live with their solution’s consequences for the length of their new terms. Most important, this approach buys much-needed time to consider the ill effects of any legislation that might be pushed through quickly and later found to have profound and devastating consequences.
The American public should follow the example of the corporate leaders who came together to formally push on the Congress, and join together in bipartisan support for this legislative cure.
Enough time remains to put this simple plan into effect. We should not allow our elected representatives to add a leadership deficit to our balance sheet.