CELESTE HEADLEE, HOST:
This is TELL ME MORE from NPR News. I'm Celeste Headlee, sitting in for Michel Martin, who's under the weather. Coming up, it's New Year's Eve. That means some people will dress like royalty tonight. So later we'll talk about the Empress of Fashion and some kings of style. That's in just a few moments.
But first, the countdown to New Year's Day has meant a lot more than a ball dropping in Times Square. There have also been questions about whether lawmakers would drop the ball in Washington, D.C. I'm talking, of course, about the drama surrounding the so-called fiscal cliff. But major financial challenges aren't just an American problem. Countries around the world are facing their own economic struggles that could play a real role in how the global financial system fares in 2013.
To find out more, we're joined again by Sudeep Reddy. He's an economics reporter for the Wall Street Journal. Welcome back to the program.
SUDEEP REDDY: Thank you, Celeste.
HEADLEE: So obviously a lot of the talk at the beginning of the year is about the fiscal cliff, and I want listeners to stay tuned to NPR and go online to npr.org. That's how you can keep up-to-date on all that's happening. But you, Sudeep, you say the process that got us to this point has already hurt the country in ways that we may not even be aware of regardless of what happens with the fiscal cliff. What do you mean?
REDDY: It really has, and if you look at the number of problems that we face in our economy, a lot of them requite government action. It requires our lawmakers to come together in some way to forge deals on big controversial issues. And this is actually one of the simplest issues the government deals with. Dealing with a budget is as simple as it gets when you come to the role of government.
Obviously there are contentious issues involved, but if you can't get the most simple processes done, it actually doesn't bode very well for the much bigger issues down the road that you need to deal with beyond taxes and beyond spending.
HEADLEE: I actually would think the debt ceiling was one of the simpler issues. I mean, it's been in place since, what, World War II. And before now, it's been raised over and over and over again. Again, a reminder, the debt ceiling isn't how much we borrow, it's how much we pay back, right. The money's already borrowed. So how come the debt ceiling becomes so controversial?
REDDY: Exactly, the debt ceiling is a perfect example of this problem. If you look back to our first big debt ceiling fight, the one that matter in the summer of 2011, most people when they watched that from afar leading into August of 2011 thought our government isn't crazy enough to default on our debt.
We've already committed this money. We've already spent it. It's a routine in Washington to raise the debt ceiling and to create a bit of a fuss over it, but when we came so close with such a big fight in the final days, that showed that maybe Washington was willing to play games with this in a way it hasn't before. And that showed really how difficult it is to get anything done.
And you saw in the weeks after that, even though the debt ceiling didn't change taxes, it didn't change spending immediately, there were no immediate changes to the economy as a result of the debt ceiling, but just the confidence hit to consumers, to investors, to businesses actually led the economy into a slide for several months after that.
And it was not until the beginning of 2012 that you actually saw a real recovery from that. We're on the cusp of that again, where even if you get Congress to come up with a deal in the coming days, you're still going to see some hit to confidence as a result.
HEADLEE: You're saying the dysfunction in Washington signals that there's red flags ahead. What else besides the debt ceiling is coming that could cause some problems?
REDDY: You have the debt ceiling of course, that needs to be raised by late February or early March before you run into the same kind of a problem, and just the dysfunction around that, as we've seen in recent weeks, is going to rattle financial markets a bit more than it probably did before.
And if you look a few weeks after that, the government needs to pass a temporary budget again to avoid a shutdown. And we've gone through shutdown fights before, but we come to a point where you have to actually go through these wrenching processes to become clarifying, in some way. A lot of people in Washington are starting to say maybe a shutdown would actually be good for the government so we can actually go through this process and decide what it is we want from our government.
Do we want the services that our government provides? It allows people to actually see some of the direct effects of what happens. And so there have been some people who are saying maybe we should push the debt ceiling a little further down so you can actually have the fight over a government shutdown.
There have been government shutdowns before. You've seen this before. It's clarifying both politically, for people to actually gauge which party is right here, and it's clarifying economically to see how much our government does that you actually need in the economy.
HEADLEE: But explain exactly how this happens. We hear all the time that this dysfunction in Washington means uncertainty, which is bad for the economy. But why? I mean, I can understand the lowering of the credit rating, and that makes a big difference, but in terms of just the way people are feeling? Does someone go to Target and make a decision on whether or not to buy that extra comforter or something because they think Congress is screwed up?
REDDY: If you actually pay attention to this, which a lot of people don't, but if you pay attention, then you have to wonder what your taxes are going to be. And if you come to the final day of the year, and you don't know what your taxes are going to be in the beginning of next year, that's a pretty good - which is where we are, it's a pretty good indication that there are some problems on that front.
If you put yourself in the mind of a businessperson, regardless of what the business is, that person is trying to plan ahead to not only how consumers are going to spend and how other businesses are going to spend but what are their tax rates, what policies are going to be put in place to deal with some of the issues coming up.
And say if you just wanted to be a wind energy producer, something that we all seem to want in this country are more renewable energy, there's been a tax credit in place, as there have been tax credits for other kind of energy, and that expires - it expires at the end of almost every year without getting renewed.
Sometimes it's renewed for a couple years. You can't plan without something like that. And you see that across the board on immigration policy, on all sorts of other policies.
HEADLEE: Yeah, that makes sense. If you're just joining us, we're talking about the American and global economic outlook in 2013 with Wall Street Journal's Sudeep Reddy. So let's talk about the global economic outlook before for the past quarter-century, it's all been about globalization, right, the world becoming more interdependent. But one of the things I find fascinating is you say that actually in the years ahead, it might turn more inward on domestic individual issues in each country.
REDDY: That's one of the effects of what we're seeing right now. As the global economy slows, and we're now in the slowest growth that we've had since the 2008-2009 recession around the world, the global economy is slowing, and that means political leaders in every country tend to turn inward. They start to look at what matters for their people politically, and part of that is just a natural reaction.
You want to figure out how to protect your economy from forces abroad, and that leads to - sometimes it leads to good policy, if you want to actually do things that support jobs at home. A lot of times it leads to bad policy because you turn inward, and you start shunning the rest of the world, you shun trade, you shun things that might have helped some of the people in the economy over the long run.
It's a very difficult process, but everyone in the world right now, whether they're a democracy or an authoritarian regime. Most of them are muddling through. They're just getting by. And that leads to a different mindset if you're a leader.
HEADLEE: Well, let's get specific then because for a long time, Southeast Asia has been really an economic engine. Is that going to continue, or China, India, Japan? How are those economies doing?
REDDY: Those are all economies that are seeing some very significant problems right now. If you're a leader in Japan, they've just gotten a new prime minister. They go through this cycle a little too often now. They are basically stuck in the mud when it comes to their economy. They've gone through a very difficult two decades where they came out of a property bust and a credit boom and collapse, and they're kind of stuck there.
China's a very interesting case because they've got new leadership in China, of course, and China has gone through this huge change with the rising middle class and also a property bubble and having to deal with that while, of course, figuring out how to provide jobs for all of these people who want to move into the middle class while the rest of the world is slowing.
And China has of course gotten a lot of its growth from cheap manufacturing, and if the rest of the world is slowing and not buying their products, they're going to face some much more significant problems, and they need to figure out how to address that.
HEADLEE: And, in South Asia, India has long - we've looked a lot at the growth of India. It's still booming?
REDDY: India's still growing quickly, but it has slowed in recent years and people in India - when I talk to them, it's kind of remarkable. They start off saying, our political system is broken. We can't get lawmakers to agree on anything.
HEADLEE: Oh, wow. It sounds a lot like America's.
REDDY: Exactly. And they don't realize until I point out that this is something that almost every democracy is dealing with right now, a very dysfunctional process.
HEADLEE: Well, what does this mean? If these other economies that we've kind of looked to as the future are slowing down, what does that mean for us here in the States?
REDDY: It should be a big concern because we have actually been building our economy in recent years to integrate with the rest of the world and to take all of this into account and I think the last few years have changed the calculus a little bit as how we think about globalization. When you see unemployment as high as it is in the U.S. with 12 million people still out of work, 40 percent of them for six months or more, that is a huge problem that even leads politicians here to turn inward and you start to question whether you should put more barriers around international trade, whether you should avoid more of those trade deals and that's going to be a tension that's probably going to define the next two years because it goes to the heart of a debate within both parties about what you actually want as your international economic policy.
There was the period in the Clinton era where you moved toward NAFTA and that got us in one direction and President Obama has been pushing for trade deals that have certain kinds of balance built into them, particularly with Asia...
HEADLEE: That may not actually come to fruition.
REDDY: Yeah, exactly, because all of these countries are now looking inward, it makes it difficult to come to agreement on some of those deals.
HEADLEE: OK. So where in the world is it looking good?
REDDY: It's looking good in places that have a lot of natural resources and, if you're Australian, if you're Canadian, those are places that have been through a recent boom and are doing fairly well, despite all the challenges around the world and that's because if you have natural resources - we haven't gone into a global recession, so the world still needs those resources and, if you're parts of the United States - in the Midwest - if you're in North Dakota, things are actually looking quite well right now.
HEADLEE: Because they have oil there.
REDDY: And places that have natural resources are doing well. If you were to see a further slide in the economy...
REDDY: ...then they're going to struggle, but for now, they're the place to be.
HEADLEE: Looking pretty rosy. Sudeep Reddy, economics reporter for the Wall Street Journal. He was here in our Washington, D.C. studio. Thank you so much. Once again, we have coverage on the fiscal talks in Washington throughout the day on NPR and online at npr.org. Happy New Year.
REDDY: Happy New Year. Thank you.
(SOUNDBITE OF MUSIC)
HEADLEE: Coming up, Diana Vreeland jumped into the world of high fashion at a time when women of her background rarely worked at all, and she built a remarkable career on style and substance.
AMANDA MACKENZIE STUART: She understood very early on that clothes aren't just clothes. They always, always reflect what is going on around in society.
HEADLEE: We hear from author Amanda MacKenzie Stuart about her book, "Empress of Fashion: A Life of Diana Vreeland." That's ahead on TELL ME MORE from NPR News. I'm Celeste Headlee.
(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.