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Monday, August 01, 2011

The Lousy Deal

We've got a debt deal and it's just the best thing ever! Check out how super-excited the White House is about the whole thing. If we go to the White House website, we learn that it's a "Win for the Economy and Budget Discipline," that the deal "Removes Cloud of Uncertainty," and that the whole thing's a trip through Bipartisan Happy-Land, where gumdrops grow on sugarplum trees and everything is made wonderful by the magical power of Centrism. Yay!

Of course, if we talk to Mean Old Mister Knows-What-the-Hell-He's-Talking-About, then the magic seems to evaporate.

Crooks and Liars:

Nobel Prize winning economist Paul Krugman warned Sunday that proposed spending cuts in a deal to raise the nation's debt ceiling would end up hurting the economy.

"From the perspective of a rational person, we shouldn't even be talking about spending cuts at all now," Krugman told ABC's Christiane Amanpour. "We have nine percent unemployment. These spending cuts are going to worsen unemployment... If you have a situation in which you are permanently going to raise the unemployment rate -- which is what this is going to do -- that's actually going to reduce future revenues."


"These spending cuts are even going to hurt the long-run fiscal position, let alone cause lots of misery. Then on top of that, we've got these budget cuts, which are entirely -- basically the Republicans [saying], 'We'll blow up the world economy unless you give us exactly what you want' and the president said, 'Okay.' That's what happened."

"We're having a debate in Washington which is all about, 'Gee, we're going to make this economy worse, but are we going to make it worse on 90 percent the Republicans' terms or 100 percent the Republicans' terms?'" Krugman said. "The answer is 100 percent."

And Krugman isn't alone here. CNN Money spoke with Chad Stone, chief economist at the Center on Budget and Policy Priorities, on the impact of the cuts.

"The economic indicators are pretty disturbing in light of the fact that policy is going in the opposite direction of a normal response to an economic slowdown," he said.

"Conventional mainstream economic analysis says when you have an economy like this one... the thing you do is provide additional monetary and fiscal stimulus," he explained.

See, it's all pretty simple. An economic downturn, recession, or depression is caused by a decrease in demand. No one's buying whatever, so no one's selling as much whatever, and no one's hiring to make whatever. If people would start spending again, things would turn around. So what we're doing is addressing a moment in time when there isn't enough spending by reducing spending. It's stupid beyond words.

Worse, this deal ties the hands of government, locking us into this guaranteed failure of a plan for a decade. If it becomes obvious it's not working, too bad. There's no changing course. And let's not even talk about the "super-committee," which is just the laziest and most transparent attempt by congress to avoid governing since the balanced budget amendment.

By trying to sell this deal as the best thing ever, President Obama is making a tremendous mistake. People like compromise as a concept, but they never like the results. That will be especially true in this case, when employment and demand drops and the economy worsens. Yet the White House is stupidly putting this across as a win and is actually trying to take credit for this economic firebomb. "Not only has the GOP successfully secured its ransom through railing against a deficit problem they’re mostly responsible for," writes Greg Sargent, "but the president himself is bragging about a deal that may ultimately complicate his reelection chances."

It didn't have to be this way and there's still a slight chance that it won't. Democrats in the House aren't extremely pleased with this and there's still a chance they could derail it. How much of a chance? I don't know, but my feeling is that it's slim.

But this would put the president in the position where using the fourteenth amendment to raise the debt ceiling unilaterally would be his only option. Sure, he's already (also stupidly) ruled that out, but it may be that he has no choice. If that happens, all this bipartisan supply-side economic flateartherism is out the window. The effect would be the same as a "clean bill" that raises the debt limit and does nothing else. Republicans would almost certainly try to impeach the president over it, but they wouldn't have a legal leg to stand on (what is the high crime or misdemeanor?) and the public wouldn't support the effort.

But the bottom line is that this isn't anything the president should pretend to be proud of. This should be an "I lost and the American people lost" sort of message. By trying to sell this crap sandwich to voters, Obama is taking ownership of it. And, beyond the reelection problem he may face because of it, that's bad news for America's future.

If this all gets blamed on Obama, then it all gets blamed on Democrats and, when everything starts to fall apart, Republicans will claim that they didn't go far enough -- and a lot of people will believe them. Remember, when a Republican sees that something isn't working, their impulse is to do more of it. So we wind up with a GOP president who takes all these losing economic strategies and cranks them up to eleven. Unemployment rises further, demand drops farther, and the nation slips deeper into what would almost become a permanent recession, where all of these problems become the "new normal" because it goes against Sacred Republican Ideology to do anything that would address them.

That's not pessimism, that's realism. And it's also realistic to say that the president is making a tremendous mistake in taking credit for this. When a terrorist has put a plane into a tailspin, you don't get on the PA and brag about being the pilot.

There is no bright side to any of this. We're standing at the brink of stupidity and are preparing to jump in with both feet. If the president were half as smart as everyone gives him credit for, the least he would do would be to act a little less enthusiastic about it.


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