Analysis: U.S. policy gridlock holding back economy? Maybe not

(Reuters) - Washington thinks a resolution of the tense debate over the national debt will unlock a burst of economic growth by lifting uncertainty that has stymied investment.

It is a widely held view on Wall Street as well, derived from the glaring signs of weak business confidence over the last year as America struggles to get its fiscal house in order.

However, evidence for this belief is far from clear and is an issue of considerable debate, and even some businesses wonder how big a factor uncertainty is.

In Lexington, Kentucky, new sales are slipping at Gray Construction, a family-owned builder of factories and distribution centers. Clients say they are holding back because America could fall into recession if Congress and the White House don't strike a deal soon to avoid a "fiscal cliff" of some $600 billion in tax increases and government spending cuts due to begin in January.

"They're saying: 'Let's wait. Let's see what happens,'" Chief Executive Stephen Gray said.

And yet, the company, which also does design and engineering work, still has a record backlog of work and has hired about 30 people in the last six months.

The company's CEO has seen little dips in the sales pipeline before and said it's hard to know how different business would be if Washington's politicians inspired more confidence. As it is, Gray sees no reason to stop hiring: "I'm not super-worried."

Like Gray, economists are also unsure how much they can attribute business decisions to something so indeterminate as uncertainty, and they are divided over the degree to which erratic policymaking has dragged on the economy in recent years, if it has at all.

Answering this question could give important clues on how the economy will perform next year, whether or not Congress strikes a deal to avoid the fiscal cliff.

HOLDING BACK

Toward that end, researchers at Stanford University and the University of Chicago have created an index to gauge just how murky the future looks.

They count soon-to-expire tax provisions and mentions of uncertainty in major newspapers, as well as how much economic forecasters disagree on things like future government spending.

In a sample period between 1985 and 2011, they found heightened uncertainty went hand in hand with weak economic growth and hiring. Their index hit an all-time high last year when congressional gridlock nearly led the United States to default on its debt. It remains high, with a host of temporary tax cuts due to expire at year's end and the debate over the fiscal cliff regularly splashed across front pages.

Nicholas Bloom, a Stanford economist who helped make the uncertainty index, says weak levels of investment, along with surveys in which businesses say they are holding back because of concerns over the direction of policy, suggest uncertainty has weighed on growth since late 2011.

This year, business investment on capital goods - things like equipment and machinery - has fallen short of what economists would expect considering the $1.7 trillion in cash that companies were holding in the third quarter.

New orders for non-defense capital goods other than aircraft fell 7 percent in the year through October, while total business investment in the third quarter dropped the most since 2009.

Bloom says businesses would spend their cash more readily if politicians united around a grand bargain to put U.S. fiscal policy on a stable path. Using past correlations between uncertainty and economic growth as a guide, he estimates that lifting uncertainty could add about 3 percent to gross domestic product over the next 18 months - enough growth to create roughly 2 million jobs.

"There should be a surge of investment and hiring," he said.

That would be a big boost to the lackluster 1.9 percent growth rate many economists expect next year.

A deal in Congress that avoids the fiscal cliff while taming the nation's $16 trillion debt over the long term may come by year-end or in early 2013. It is also plausible Washington will avoid the fiscal cliff but kick the can into 2013 when it comes to the details of longer-term deficit planning.

Republican House Speaker John Boehner, who has looked exasperated in public over the fiscal debate, has edged closer to President Barack Obama's key demands in the last few days, and the president made a counteroffer on Monday that could put a deal within reach. The two sides still differ on where to set tax rates and how to overhaul social spending programs.

The tense negotiations have corporate America on edge.

So far this month, companies have submitted 148 statements to the Securities and Exchange Commission expressing concern about the fiscal cliff. In November, there were 215 such warnings, up from 80 in October and none prior to May. About half of 200 big companies surveyed by American Express last month said Congress won't resolve the fiscal cliff this year.

Chemical maker DuPont is trimming its capital investment plans due to uncertainty. "We're not going to spend as much as we thought next year," DuPont CEO Ellen Kullman said last week in an interview.

Treasury Secretary Timothy Geithner told CNBC earlier this month that reaching a sensible fiscal deal would get rid of the biggest roadblock to stronger growth. Many business leaders and lawmakers agree.

NO SURE THING

However, some economists doubt uncertainty has played such a central role holding back the U.S. economy. If they are right, growth next year could disappoint even if politicians wow investors with a grand bargain.

Researchers at Goldman Sachs say the weak economy might be boosting measures of uncertainty as much as the other way around.

The bank doesn't rule out an "uncertainty shock" over the next few months - most economists think uncertainty must matter for something - but its researchers crunched numbers and found there might be a simpler explanation for the disappointing levels of business spending.

The bank's economists calculated how much the business sector would normally be investing given its assets and the stage of the business cycle, and found the recent shortfall could be mostly explained by a lack of available credit.

Rather than being too scared to invest, companies might simply be having trouble getting loans. That makes sense considering many banks are still licking their wounds from the recent financial crisis.

"The evidence that a policy uncertainty shock is already depressing activity is far from unequivocal," Goldman Sachs economists Jan Hatzius and Sven Jari Stehn wrote in a recent note.

Their research suggests some of the hype over uncertainty is overblown. Indeed, much of the country is not paying attention to the fiscal cliff debate.

A poll by Gallup conducted December 1-2 showed only 60 percent of Americans were following the talks at least somewhat closely. In the history of national events tracked by Gallup, that ranks somewhere between the Iraqi election of 2005 and the confirmation hearings for Supreme Court Justice Samuel Alito in 2006.

Households, whose spending drives more than two-thirds of the economy, are not as worried as the country's CEOs, although a recent consumer sentiment survey showed concerns appeared to grow in early December.

Some economists say the most important issue for Congress is not to resolve policy uncertainty but rather to strike a fiscal deal that doesn't hurt the economy by ushering in harsh budget austerity measures.

Surveys of small businesses show companies are worried about higher taxes, but over the last few months and years they have worried even more about poor sales. Adjusting for inflation, household incomes are still lower than they were before the recession. This has depressed spending, a situation that could be exacerbated by tighter fiscal policy.

"The biggest uncertainty is whether the U.S. consumer is really back," said Stephanie Kelton, an economist at the University of Missouri-Kansas City.

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South Africa's Zuma boosted by Ramaphosa return in ANC win

BLOEMFONTEIN, South Africa (Reuters) - South Africa's ruling African National Congress (ANC) re-elected President Jacob Zuma as its leader on Tuesday, setting him up for seven more years as head of state of Africa's biggest economy.

Nelson Mandela's 100-year-old liberation movement also chose respected businessman Cyril Ramaphosa as his deputy, seeking to repair the image of a Zuma administration battered by corruption scandals and strikes and facing growing discontent among the poor black majority.

More than 4,000 ANC delegates crammed into a marquee in the central city of Bloemfontein erupted into wild cheers when Zuma was confirmed in the top party post after comfortably seeing off a challenge by Deputy President Kgalema Motlanthe.

Given the ANC's dominance at the ballot-box less than two decades after the end of apartheid, 70-year-old Zuma is virtually assured a second, five-year term as President of South Africa in 2014 elections.

The rand briefly edged higher against the dollar, reflecting relief among investors at the prospect of policies remaining largely unchanged.

After the vote, the beaming president, who secured 2,995 votes out of 3,977 cast, walked on stage to shake hands with his fellow 'comrades' - a label reflecting the ANC's roots in the communist-backed struggle against decades of white-minority rule.

Zuma, a polygamous Zulu traditionalist, came to power in 2009 amid the first recession in 18 years and has had a chequered economic record, culminating in violent labor unrest in the mines this year that triggered two downgrades in South Africa's credit ratings.

He has also been dogged by personal scandals, including fathering a child by the daughter of a close friend. Despite this, his popularity within the party is overwhelming.

"I don't care what people say about Jacob Zuma," said Sinovuyo Kley, a delegate from the impoverished Eastern Cape. "When you hear him sing, you know he is one with the people. He speaks our language and knows our struggles."

RAMAPHOSA RETURNS

Zuma's re-election had looked likely for much of the year, making the main talking point of the five-day Bloemfontein conference the political renaissance of Ramaphosa after a decade-long absence to focus on his business interests.

Attention was also diverted by the arrest of four whites on suspicion of a plot to bomb the meeting and execute Zuma and top ministers as part of a plan to carve an independent Afrikaner state out of Mandela's "Rainbow Nation".

Having risen to prominence as a charismatic union leader in the 1980s, Ramaphosa became the ANC's main negotiator in the talks that led to historic all-race elections in 1994 and Mandela's appointment as South Africa's first black president.

He was also tipped as a successor to the revered Mandela - now 94 and recovering in hospital from a lung infection - but gradually removed himself from politics when the job went to party stalwart Thabo Mbeki in 1999.

It was unclear just how much impact Ramaphosa's inclusion in Zuma's inner circle could have on the ANC government.

Some analysts say he should help push through plans to lift long-term economic growth and stop South Africa's competitive slide against fast-growing economies in Asia and South America.

However, others who know his business style told Reuters he tended not to throw his weight around in company board-rooms, suggesting he might avoid challenging South Africa's politically powerful unions.

"He is surprisingly quiet and non-confrontational on boards," one person who knows Ramaphosa said.

Others suggest that his ranking as South Africa's second richest black businessman could limit his appeal to the legions of poor and jobless who are increasingly doubting the ANC's post-apartheid promise to deliver "a better life for all".

LOOMING DOWNGRADE

"Looking further ahead, we remain doubtful that Zuma can oversee the reforms needed to pull the South African economy out of its current rut," said Shilan Shah, Africa economist at UK-based Capital Economics.

There is precious little time to make an impact, with Fitch expected in January to follow Moodys and Standard & Poor's in cutting South Africa's credit rating because of concerns about sluggish growth, forecast at 2.5 percent this year.

"The leadership issue is never really decisive for the market," said Nomura emerging markets analyst Peter Attard-Montalto. "It's always interested in policy and that's far more what the ratings agencies are looking at."

Zuma may also find his Bloemfontein victory dance cut short, with a poll published this week putting his nationwide approval rating at 52 percent, in contrast to 70 percent for the outgoing Motlanthe. This reflects just how much the internal politics of the ruling ANC is insulated from daily realities.

The opposition Democratic Alliance (DA) is starting to make in-roads into ANC support at local and regional level despite its reputation among many black South Africans as the party of white privilege. The DA said it had been inundated with membership inquiries within an hour of Zuma being re-elected.

Even within his own party, young South Africans are snapping at Zuma's heels, demanding political and economic change for a generation that has little memory of apartheid but which remains at the sharp end of 25 percent unemployment.

"The young people of South Africa are tired of promises and need action for economic freedom in our lifetime," the ANC Youth League, which had backed Motlanthe, said in a statement.

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Oregon Mall Shooting: Man Kills 2, Self in Rampage

A masked gunman opened fire today at Clackamas Town Center, a mall in suburban Portland, Ore., killing two people, injuring one, and then killing himself. "I can confirm the shooter is dead of an apparent self inflicted gunshot wound," Lt. James Rhodes of the Clackamas County, Ore., Sheriff's Department said today. "By all accounts there were no rounds fired by law enforcement today in the mall." Police have not released the names of the deceased. Rhodes said authorities are in the process of notifying victims' families. The injured victim has been transported to a local hospital. Rhodes described the shooter as an adult male. Witnesses from the shooting rampage said that a young man in a white hockey mask and bulletproof vest tore through the Macy's, food court, and mall hallways firing rounds at shoppers beginning around 3:30 p.m. PT today. Hundreds of people were evacuated from the busy mall full of holiday shoppers after the shooting began. READ: Guns in America: A Statistical Look The gunman entered the mall through a Macy's store, ran through the upper level of Macy's and opened fire near the mall food court, firing multiple shots, one right after another, with what is believed to be a black, semiautomatic rifle, according to witness reports. Amber Tate said she was in the parking lot of the mall when she saw the shooter run by, wearing a mask and carrying a machine gun, headed for the Macy's. "He looked like a teenager wearing a gun, like a bullet-proof vest and he had a machine, like an assault rifle and a white mask and he looked at me," she said. Witnesses described the shooter as being on a mission and determined, looking straight ahead. He then seemed to walk through the mall toward the other end of the building, shooting along the way, according to witness reports. Those interviewed said that Macy's shoppers and store employees huddled in a dressing room to avoid being found. "I was helping a customer in the middle of the store, her and her granddaughter and while we were looking at sweatshirts we heard five to seven shots from a machine gun fire just outside my store," Jacob Rogers, a store clerk, told ABC affiliate KATU-TV in Portland. "We moved everyone into the back room where there's no access to outside but where there's a camera so we can monitor what's going on out front," Rogers said. Evan Walters, an employee at a store in the mall, told ABC News Radio that he was locked in a store for his safety and he saw two people shot and heard multiple gunshots. "It was over 20, and it was kind of surreal because we hear pops and loud noises," he said. "We're next to the food court here and we hear pops and loud noises all the time, but we don't -- nothing like that. It was very definite gunshots." Police are tracing the weapon used in the shooting.

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N. Korea Launches Long-Range Missile

North Korea has successfully launched a long-range rocket and appears to have put "an object" into orbit, NORAD officials said today. North American Aerospace Defense Command officials said U.S. missile warning systems detected and tracked the launch of a North Korean missile at 7:49 p.m. ET. The first stage appeared to fall into the Yellow Sea and the second stage was assessed to fall into the Philippine Sea, the officials said. Initial indications are that the missile deployed an object that appeared to achieve orbit, NORAD said. At no time was the missile or the resultant debris a threat to North America. North Korea insists the launch of the long-range Unha-3 rocket is simply part of a peaceful space program, but the U.S. and key Asian allies believe it is a disguised attempt to test a long range ballistic missile that could deliver a nuclear warhead and one day, with development, reach the United States. It is the country's fourth attempt to launch a long-range missile, and by far its most successful. In lanuches in 1998 and in 2009 they succeed in separating the second stage. In 2006 and in April 2012 both launch attempts failed only minutes after liftoff. If the North Koreans succeed in separating the third stage, the rocket could reach as far as Los Angeles. A South Korean military official confirmed that one of their three warships equipped with Aegis radar system detected the launch. The first stage fell just below Byunsan, southwest of the Korean peninsula, exactly where it was supposed to, according to the official. Japanese chief government spokesman Osamu Fujimura said the launch occurred at 9:49 a.m. and the rocket passed over Okinawa at 10:01 am. The secretive regime had been saying it would launch the rocket, but over the weekend announced plans of a possible delay due to "unspecified reasons." Official state media blamed the delay on a technical glitch. A statement from the Korean Committee of Space Technology claimed Monday that scientists and technicians "found a technical deficiency in the first-stage control engine module of the rocket carrying the satellite." Satellite images also revealed that a new third-stage booster was delivered to the launch pad on Saturday. The United States has mobilized four warships in the Asia-Pacific region to monitor and possibly shoot down the launch. The guided missile destroyer the USS John S. McCain and the guided missile cruiser the USS Shiloh join the USS Benfold and USS Fitzgerald, also guided missile destroyers, to "reassure allies in the region" according to officials. Though some analysts in South Korea expressed doubts that a launch would actually take place this year, citing poor weather in addition to the technical challenges, South Korea had upped its defense level to "Watchcon 2," which is issued when there is a possible viable threat to the nation. South Korea usually occupies a "Watchcon 3" status due to the official state of war with the North. North Korea's actions are timely as many notable events overlap this month. Dec. 17 marks the one year anniversary of the country's Dear Leader Kim Jong-il's death. Analysts believe his son and successor, Kim Jong-Un, is under pressure to show the world he is intent on continuing his father's "Military First" policy and demonstrate a show of strength. The planned rocket launch is also seen as a political statement. It may coincide with the South Korean presidential election, scheduled for Dec. 19. For presidential candidate Park Geun-hye in particular, North Korea holds particular meaning. Her father, Park Chung-hee, served as the South Korean president for 16 years. He was the target of multiple assassination attempts by North Korea. One of those effort killed his wife, Chung-hee's mother. Park took over her mother's duties as first lady until her father was assassinated by the chief of security in 1979. Park re-emerged in 1997 as an active politician. She is the first female candidate to be seriously considered for president. Her party, the Saenuridang, is a traditionally conservative group that adapts a stricter policy towards North Korea than her opponent, Moon Jae-in. As head of the Democratic United Party, he champions a more lenient approach to the South's belligerent neighbor.

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Indian sitar virtuoso Ravi Shankar dies at 92

NEW DELHI (AP) — With an instrument perplexing to most Westerners, Ravi Shankar helped connect the world through music. The sitar virtuoso hobnobbed with the Beatles, became a hippie musical icon and spearheaded the first rock benefit concert as he introduced traditional Indian ragas to Western audiences over nearly a century. From George Harrison to John Coltrane, from Yehudi Menuhin to David Crosby, his connections reflected music's universality, though a gap persisted between Shankar and many Western fans. Sometimes they mistook tuning for tunes, while he stood aghast at displays like Jimi Hendrix's burning guitar. Shankar died Tuesday at age 92. A statement on his website said he died in San Diego, near his Southern California home with his wife and a daughter by his side. The musician's foundation issued a statement saying that he had suffered upper respiratory and heart problems and had undergone heart-valve replacement surgery last week. Indian Prime Minister Manmohan Singh also confirmed Shankar's death and called him a "national treasure." Labeled "the godfather of world music" by Harrison, Shankar helped millions of classical, jazz and rock lovers discover the centuries-old traditions of Indian music. "He was legend of legends," Shivkumar Sharma, a noted santoor player who performed with Shankar, told Indian media. "Indian classical was not at all known in the Western world. He was the musician who had that training ... the ability to communicate with the Western audience." He also pioneered the concept of the rock benefit with the 1971 Concert For Bangladesh. To later generations, he was known as the estranged father of popular American singer Norah Jones. His last musical performance was with his other daughter, sitarist Anoushka Shankar Wright, on Nov. 4 in Long Beach, California; his foundation said it was to celebrate his 10th decade of creating music. The multiple Grammy winner learned that he had again been nominated for the award the night before his surgery. "It's one of the biggest losses for the music world," said Kartic Seshadri, a Shankar protege, sitar virtuoso and music professor at the University of California, San Diego. "There's nothing more to be said." As early as the 1950s, Shankar began collaborating with and teaching some of the greats of Western music, including violinist Menuhin and jazz saxophonist Coltrane. He played well-received shows in concert halls in Europe and the United States, but faced a constant struggle to bridge the musical gap between the West and the East. Describing an early Shankar tour in 1957, Time magazine said. "U.S. audiences were receptive but occasionally puzzled." His close relationship with Harrison, the Beatles lead guitarist, shot Shankar to global stardom in the 1960s. Harrison had grown fascinated with the sitar, a long-necked string instrument that uses a bulbous gourd for its resonating chamber and resembles a giant lute. He played the instrument, with a Western tuning, on the song "Norwegian Wood," but soon sought out Shankar, already a musical icon in India, to teach him to play it properly. The pair spent weeks together, starting the lessons at Harrison's house in England and then moving to a houseboat in Kashmir and later to California. Gaining confidence with the complex instrument, Harrison recorded the Indian-inspired song "Within You Without You" on the Beatles' "Sgt. Pepper's Lonely Hearts Club Band," helping spark the raga-rock phase of 60s music and drawing increasing attention to Shankar and his work. Shankar's popularity exploded, and he soon found himself playing on bills with some of the top rock musicians of the era. He played a four-hour set at the Monterey Pop Festival and the opening day of Woodstock. Though the audience for his music had hugely expanded, Shankar, a serious, disciplined traditionalist who had played Carnegie Hall, chafed against the drug use and rebelliousness of the hippie culture. "I was shocked to see people dressing so flamboyantly. They were all stoned. To me, it was a new world," Shankar told Rolling Stone of the Monterey festival. While he enjoyed Otis Redding and the Mamas and the Papas at the festival, he was horrified when Hendrix lit his guitar on fire. "That was too much for me. In our culture, we have such respect for musical instruments, they are like part of God," he said. In 1971, moved by the plight of millions of refugees fleeing into India to escape the war in Bangladesh, Shankar reached out to Harrison to see what they could do to help. In what Shankar later described as "one of the most moving and intense musical experiences of the century," the pair organized two benefit concerts at Madison Square Garden that included Eric Clapton, Bob Dylan and Ringo Starr. The concert, which spawned an album and a film, raised millions of dollars for UNICEF and inspired other rock benefits, including the 1985 Live Aid concert to raise funds for famine relief in Ethiopia and the 2010 Hope For Haiti Now telethon. Ravindra Shankar Chowdhury was born April 7, 1920, in the Indian city of Varanasi. At the age of 10, he moved to Paris to join the world famous dance troupe of his brother Uday. Over the next eight years, Shankar traveled with the troupe across Europe, America and Asia, and later credited his early immersion in foreign cultures with making him such an effective ambassador for Indian music. During one tour, renowned musician Baba Allaudin Khan joined the troupe, took Shankar under his wing and eventually became his teacher through 7 1/2 years of isolated, rigorous study of the sitar. "Khan told me you have to leave everything else and do one thing properly," Shankar told The Associated Press. In the 1950s, Shankar began gaining fame throughout India. He held the influential position of music director for All India Radio in New Delhi and wrote the scores for several popular films. He began writing compositions for orchestras, blending clarinets and other foreign instruments into traditional Indian music. And he became a de facto tutor for Westerners fascinated by India's musical traditions. He gave lessons to Coltrane, who named his son Ravi in Shankar's honor, and became close friends with Menuhin, recording the acclaimed "West Meets East" album with him. He also collaborated with flutist Jean Pierre Rampal, composer Philip Glass and conductors Andre Previn and Zubin Mehta. "Any player on any instrument with any ears would be deeply moved by Ravi Shankar. If you love music, it would be impossible not to be," singer Crosby, whose band The Byrds was inspired by Shankar's music, said in the book "The Dawn of Indian Music in the West: Bhairavi." Shankar's personal life, however, was more complex. His 1941 marriage to Baba Allaudin Khan's daughter, Annapurna Devi, ended in divorce. Though he had a decades-long relationship with dancer Kamala Shastri that ended in 1981, he had relationships with several other women in the 1970s. In 1979, he fathered Norah Jones with New York concert promoter Sue Jones, and in 1981, Sukanya Rajan, who played the tanpura at his concerts, gave birth to his daughter Anoushka. He grew estranged from Sue Jones in the 80s and didn't see Norah for a decade, though they later re-established contact. He married Rajan in 1989 and trained young Anoushka as his heir on the sitar. In recent years, father and daughter toured the world together. The statement she and her mother released said, "Although it is a time for sorrow and sadness, it is also a time for all of us to give thanks and to be grateful that we were able to have him as part of our lives." When Jones shot to stardom and won five Grammy awards in 2003, Anoushka Shankar was nominated for a Grammy of her own. Shankar himself won three Grammy awards and was nominated for an Oscar for his musical score for the movie "Gandhi." His album "The Living Room Sessions, Part 1" earned him his latest Grammy nomination, for best world music album. Despite his fame, numerous albums and decades of world tours, Shankar's music remained a riddle to many Western ears. Shankar was amused after he and colleague Ustad Ali Akbar Khan were greeted with admiring applause when they opened the Concert for Bangladesh by twanging their sitar and sarod for a minute and a half. "If you like our tuning so much, I hope you will enjoy the playing more," he told the confused crowd, and then launched into his set.

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White House, Boehner quietly swap ‘fiscal cliff’ offers

President Barack Obama and Republican House Speaker John Boehner spoke Tuesday after privately exchanging a new round of rival proposals for keeping the economy from tumbling off the "fiscal cliff" on Jan. 1, aides to both men told Yahoo News. The fresh discussion signaled a welcome bit of movement in negotiations that had appeared stalled for several days. "The speaker and POTUS (the president of the United States) spoke by telephone this evening," a White House official said on condition of anonymity. A Boehner aide said the White House had presented a new offer on tax cuts and revenue increases on Monday and that Republicans had returned with a counter-offer on Tuesday. The White House refused to offer details about its proposal. But the Boehner aide said the new offer brought Obama's initial demand for $1.6 trillion in new tax revenues down to $1.4 trillion. The step would still require raising tax rates on wealthier Americans, something Boehner has previously rejected. Obama has said any final deal must raise tax rates on the richest Americans. Boehner spokesman Michael Steel confirmed that the speaker's office had returned a counter-offer to the president but would not disclose many specifics. "We sent the White House a counter-offer that would achieve tax and entitlement reform to solve our looming debt crisis and create more American jobs," Steel said. Earlier Tuesday, the speaker himself complained that Obama hadn't been specific enough about the spending cuts he was prepared to embrace as part of a broader deficit-cutting plan. "Let's be honest, we're broke," Boehner said on the House floor. "We're still waiting for the White House to identify what spending cuts the president is willing to make as part of the 'balanced approach' that he promised the American people." Also Tuesday, Democratic Senate Majority Leader Harry Reid warned it was unlikely that lawmakers and the White House would be able to forge a compromise in time for Christmas, raising the prospect of a high-stakes game of chicken through the end of the year. "It's going to be extremely difficult to get it done before Christmas—but it could be done," the Nevada Democrat told reporters. "This is not something we can do easily, at least as far as bill drafting goes. But until we hear something from the Republicans, there's nothing to draft." Reid's comments reflected the sense of gloom across the Capitol in recent days about prospects for averting automatic across-the-board tax hikes and painful government spending cuts that, together, could plunge the economy in a new recession. Those measures will take effect Jan. 1 unless Congress acts. Obama had no public appearances Tuesday. His spokesman, Jay Carney, acknowledged the White House was deliberately being "incredibly opaque" about the behind-the scenes negotiations. "If it weren't for the broader interest here, which is in trying to allow some space for the parties to see if they can achieve a compromise, you know, I'd be spilling my guts from here," Carney said. At their weekly party lunch meetings on Capitol Hill, senators complained about the secrecy surrounding the talks. Alabama Republican Sen. Jeff Sessions said Boehner "doesn't have my proxy" in cutting a deal with Obama. "I've been elected, I've got a responsibility to make an independent determination of these matters," Sessions said. Why the secrecy? Republican Sen. Rob Portman of Ohio told Yahoo News that "you need to build a level of trust first by not having it negotiated in the media." "You need an opportunity, particularly with the president and Republican congressional leaders, to talk about some very tough issues," he said. Still, Portman said, "they can't expect those of us who going to ultimately decide what happens in the Senate to vote on it without having a full understanding and input." For Senate Budget Committee Chairman Kent Conrad of North Dakota, a Democrat who is retiring, the problem is less the back-room dealing and more the posturing for the cameras. "It's the same old lines over and over. How about just going into a room and getting a deal?" he said. For his part, Republican Senate Minority Leader Mitch McConnell tried to steer the focus back to his party's preferred terrain: spending cuts. He listed a series of programs he considered wasteful, citing government promotion of a videogame that allows teens "to relive prom night." "Get this: Taxpayers also just spent $325,000 on a Robotic squirrel named RoboSquirrel," he said. "The president seems to think that if all he talks about are taxes, and that's all reporters write about, somehow the rest of us will magically forget that government spending is completely out of control, and that he himself has been insisting on balance." The Republican push came as party insiders privately acknowledged that they've placed themselves in a significant PR bind by insisting that tax cuts for middle class earners can only be extended if they are preserved for wealthier Americans as well. Obama wants to tax rates on income above $200,000 for individuals and $250,000 for families, a position Boehner and other Republican leaders have rejected. "We're terribly weak on this, the tax component," one congressional Republican said.

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Michigan lawmakers approve right-to-work bills

LANSING, Mich. (AP) — Over the chants of thousands of angry protesters, Republican lawmakers made Michigan a right-to-work state Tuesday, dealing a devastating and once-unthinkable defeat to organized labor in a place that has been a bastion of the movement for generations. The GOP-dominated House ignored Democrats' pleas to delay the final passage and instead approved two bills with the same ruthless efficiency that the Senate showed last week. One measure dealt with private-sector workers, the other with government employees. Republican Gov. Rick Snyder signed them both within hours, calling them "pro-worker and pro-Michigan." "This is about freedom, fairness and equality," House Speaker Jase Bolger said during the floor debate. "These are basic American rights — rights that should unite us." After the vote, he said, Michigan's future "has never been brighter, because workers are free." The state where the United Auto Workers was founded and labor has long been a political titan will join 23 others with right-to-work laws, which ban requirements that nonunion employees pay unions for negotiating contracts and other services. Supporters say the laws give workers more choice and support economic growth, but critics insist the real intent is to weaken organized labor by encouraging workers to "freeload" by withholding money unions need to bargain effectively. Protesters in the Capitol gallery chanted "Shame on you!" as the measures were adopted. Union backers clogged the hallways and grounds shouting "No justice, no peace." And Democrats warned that hard feelings over the legislation and Republicans' refusal to hold committee hearings or allow a statewide referendum would be long lasting. U.S. Sen. Carl Levin and other Democrats in the state's congressional delegation met with Snyder on Monday and urged him to slow things down. "For millions of Michigan workers, this is no ordinary debate," Levin said after the House vote. "It's an assault on their right to have their elected bargaining agent negotiate their pay, benefits and working conditions, and to have all who benefit from such negotiations share in some way in the cost of obtaining them." The crowds were considerably smaller than those drawn by right-to-work legislation in Indiana earlier this year and in Wisconsin in 2011 during consideration of a law curtailing collective bargaining rights for most state employees. Those measures provoked weeks of intense debate, with Democrats boycotting sessions to delay action and tens of thousands of activists occupying statehouses. In Michigan, Republicans acted so quickly that opponents had little time to plan massive resistance. Snyder and GOP leaders announced their intentions last Thursday. Within hours, the bills were hurriedly pushed through the Senate as powerless Democrats objected. After a legally required five-day waiting period, the House approved final passage. The governor said he saw no reason not to sign the bills immediately, especially with demonstrators still hoping to dissuade him. "They can finish up, and they can go home because they know ... making more comments on that is not going to change the outcome," he said. "I view this as simply trying to get this issue behind us." Snyder said he expects the law to be challenged in court but believes it will stand. He said unions were largely responsible for its divisiveness, having ignored his advice and pushed an unsuccessful November ballot initiative seeking to make right-to-work laws unconstitutional. The bitter campaign over the ballot measure put the issue on center-stage. "Introducing freedom-to-work in Michigan will contribute to our state's economic comeback while preserving the roles of unions and collective bargaining," Snyder said. Protesters began assembling before daylight outside the sandstone-and-brick Capitol, chanting and whistling in the chilly darkness and waving placards with slogans such as "Stop the War on Workers." Others joined a three-block march to the building, some wearing coveralls and hard hats. Valerie Constance, a reading instructor for the Wayne County Community College District and member of the American Federation of Teachers, sat on the Capitol steps with a sign shaped like a tombstone. It read: "Here lies democracy." "I do think this is a very sad day in Michigan history," Constance said. The crowds filled the rotunda area, beating drums and chanting. The chorus rose to a deafening thunder as House members voted. Later, protesters surged toward a building across the street housing Snyder's office. Two people were arrested when they tried to get inside, state police said. By late afternoon, the demonstrators had mostly dispersed. The governor insisted the matter wasn't handled with undue haste, calling the debate in the House and Senate a "healthy discussion." Michigan gives the right-to-work movement its strongest foothold yet in the Rust Belt, where the 2010 election and tea party movement produced assertive Republican majorities that have dealt unions repeated setbacks. Opponents said they would press Snyder to use his line-item veto authority to remove a $1 million appropriation from the bills, making them eligible for a statewide referendum. But the House swiftly rejected a Democratic amendment to that effect. Lawmakers who backed the bills "will be held accountable at the ballot box in 2014," said state Rep. Tim Greimel, the incoming House Democratic leader. But Sen. John Proos, a Republican from St. Joseph who voted for both bills, predicted that objections would fade as the shift in policy brings more jobs to Michigan.

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