Congressional procrastination could lead to chaotic decision-making on the federal budget after the November elections, but many economists believe this procrastination is already harming the economy.

The damage stems from widespread uncertainty over what elected officials will do, if anything, about the “fiscal cliff” – a combination of sharp “automatic” spending cuts and the scheduled expiration of tax cuts at year’s end.

The Wall Street Journal reported today on its survey of 47 economists, noting their widespread concern about the growing economic cost of congressional inaction. This “adds insult to injury to an economy already flirting with a stall rate,” said Diane Swonk of Mesirow Financial. Another analyst, Julia Coronado of BNP Paribas, said: “We are already feeling the effects in hiring and investment.”

The general expectation in Washington is that elected officials will not take action on the fiscal cliff until after the elections, despite encouragement throughout much of this year from The Concord Coalition and many other analysts and groups to work out a bipartisan action plan as soon as possible.

This post was co-authored with Louise Mackey, intern from the Washington Ireland Program 

Interest rates are at historically low levels, making borrowing very affordable for consumers -- and the United States government. When it issues debt, the federal government, like any other borrower, pays interest. This is how the government finances its annual budget deficits.

Why are interest rates so low now?

There are two primary reasons. First, during the recession there was less demand for credit. And to combat this, the Federal Reserve brought interest rates down to spur borrowing. Second, in response to the global economic slowdown, investors around the world have been desperate to place their money in a safe haven -- and U.S. Treasuries are still considered the safest investment in the world.

Interest rates are projected to stay at or near historic lows over the next two years as the economy continues to recover. Eventually, though, interest rates will begin to return to normal levels as economic growth puts inflationary pressure on the economy. This normalization of rates will increase the government’s borrowing costs. Those costs will also be going up simply because the government is borrowing...

The Medicare actuaries have just updated their projections for National Health Expenditures (NHE) and the overall picture they illustrate is a welcome one, but likely reflects temporary factors and cannot serve as an excuse for politicans to rest on their laurels.

On the plus side, health care cost inflation has slowed pretty dramatically over the last three years (2009-2011) and is also projected to be slower than normal for 2012 and 2013 -- with those costs staying nearly constant as a percent of GDP throughout the entire time period (around 17.9 percent). Furthermore, while spending is projected to jump in 2014, as the major health insurance provisions of the Affordable Care Act (ACA) extend coverage to approximately 22 million people, over the period 2011-2021 spending is projected to grow at an annual average of 0.9 percent above GDP growth. This is good news because most budget experts consider health care cost growth of 1 percent over GDP the "gold standard" for a tough, but theoretically obtainable, spending target. (Historically, health care costs have risen 2 percentage points faster than GDP.)

The actuaries suggest most of the recent slowdown in health care spending can be attributed to the recession and...

Throughout this painfully prolonged economic recovery, economic developments as they are reported have often been confusing. They seem to send mixed messages about the best courses of action for fiscal policy.

Sometimes we are told that more personal spending (consumption) would be good, and sometimes we are told we need to save more. Sometimes we are told that we need to reduce the government budget deficit, and sometimes we are told that continued deficit spending is needed to avoid a double-dip recession.

So what should we be doing with fiscal policy right now -- consolidating or stimulating?

The most recent economic news is that the economy’s overall growth rate has slowed and is falling short of expectations (2.2 percent annual growth rate of GDP for first quarter of 2012 compared with 3 percent in the prior quarter and 2.5 percent expected). Personal spending has slowed as well (0.3 percent monthly growth in March, down from 0.9 percent the prior month and below the 0.5 percent expected). Job gains have also weakened and are not keeping pace with the natural growth in the working-age population.

This news suggests that more private consumption spending, encouraged by continued stimulative, deficit-financed government spending and tax cuts, is needed to further expand...