Over the cliff

There is something about the dying embers of a year which causes the world to concentrate on entirely the wrong story. In the last days of 1999 many were fixated on the so-called ‘millennium bug’ rather than on the real computing crisis: the absurd over-valuations of internet companies which was soon to lead to stock market armageddon. In a similar way the end of 2012 was dominated by dire predictions of what would happen if the US were to fall over the ‘fiscal cliff’.

In the event, the fiscal cliff has turned out to be a lightly graded slope. This week the US Congress approved a compromise agreement of some tax rises and spending cuts. An 11th-hour deal was always likely to happen. The fiscal cliff was not a genuine economic crisis but a deliberate policy of mutually assured destruction designed to force two sides to settle their differences.

Meanwhile, the world has largely overlooked the real story of the US economy: that it is growing strongly. On 20 December the Bureau of Economic Analysis published its final estimate for annualised economic growth in the third quarter of 2012, revealing that the US economy is now growing at 3.1 per cent. Unemployment is down to 7.7 per cent, from 9.4 per cent two years ago. Even the housing market — which did more than anything else to create the economic crisis in the first place — has stabilised, and in many places prices are rising.

When American histories of the economic crisis come to be written it is likely that they will use the dates 2007–2012 to define it. British historians, though, will almost certainly have to use an end-date at least a couple of years later. Some European historians may not be able to establish an end-date at all, marking 2007 as the beginning of a long, generalised decline.