Should We Compromise?

For John, BLUF:  I am not sure we have a consensus on the right path back from the Fiscal Cliff.  Nothing to see here; just move along.

Yesterday's Wall Street Journal notes that manufacturing may be receeding in the US.

American manufacturing contracted in November for the first time in three months as factories throttled back hiring and investment amid uncertainty about the U.S. economy and budget policies.

Various reports on manufacturing around the globe suggested the world's factories are moving at slightly different speeds: Europe continues to wobble, while China's factories look to be on the mend.  Manufacturing in China expanded in November, hitting its highest level in 13 months by one measure.  Factories in the euro zone contracted for the ninth consecutive month, but at a slower pace.

In the U.S., the Institute for Supply Management's index of manufacturing activity fell to 49.5, the lowest level in more than three years.  Readings under 50 indicate activity is shrinking instead of growing.  Details of the report suggested that worries about whether Washington will keep the economy from tumbling off the so-called fiscal cliff—tax increases and spending cuts set to arrive in 2013—have many manufacturers in a defensive crouch.

The Fiscal Cliff rears its ugly head.  Before we just write off the politicians in DC for playing partisan games, we need to remember there can be legitimate differences of opinion.  A compromise might well give us the worst of both positions.  But, which position is correct?

Regards  —  Cliff