Stocks open sharply higher

It's a surprisingly strong start to the New Year, considering that many investors already had bought into the market on the assumption that some sort of deal would be passed. It's also surprising because House Republicans and the White House face many tough battles ahead on spending cuts and the nation's debt ceiling. Perhaps this is a sigh-of-relief rally - that finally there were enough Democrats and Republicans in the House to beat back the numbskulls who were about blow up the deal. There's all sorts of commentary this morning about the possible economic impact (WSJ, NYT, Washington Post), though to be honest what really matters is how consumers and businesses will respond in the coming months to what are mostly slight tax adjustments. In other words, will there be any reluctance to buy a new house or hire more workers? After about two hours of trading, the Wall Street seems to be betting that Washington's dysfunction can be insulated from the rest of the economy, at least in the short term. Anyway, the Dow is up 225 points, to 13,329.

Jefferies analyst David Zervos seems to have it about right (via Business Insider):

In the end, the fiscal cliff will go down in the history books as some laughable combination of Y2K, the end of the Mayan calendar, a Harold Camping video, and a few pages from a Nostradamus book. The idea that a move in top marginal tax rates by 5 percent would send the economy into a tailspin was ludicrous. In the last century, across numerous developed nations, we have seen plenty of strong growth with top marginal income tax rates greater than 39.4 percent. And the academic economic literature has never been able to accurately document strong correlations between top marginal income tax rates and long run growth.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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