Monday, August 01, 2011

The debt ceiling deal -- who won and who lost?

By Richard K. Barry 

Two people I tend to consult to get a read on current economic policy struggles in Washington are Paul Krugman and Robert Reich. Not that anyone is ever right about everything, and maybe it's simply true that these two support my understanding of the world and I find that they usually make sense.

Whatever the case, they provided some pretty depressing commentary today on the deal Obama struck to raise the debt ceiling.

Here's Reich:

Anyone who characterizes the deal between the President, Democratic and Republican leaders as a victory for the American people over partisanship understands neither economics or politics.

The deal does not raise taxes on America's wealthy and most fortunate -- who are now taking home a larger share of total wealth, and whose tax rates are already lower than they have been in eighty years. Yet it puts the nation's most important safety nets and public investments on the chopping block.

It also hobbles the capacity of the government to respond to the jobs and growth crisis. Added to the cuts already underway by state and local governments, the deal's spending cuts increase the odds of a double-dip recession. And the deal strengthens the hand of the political right. 

And from Krugman in a piece entitled "The President Surrenders":

For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

The bottom line is that there are two ways to win in politics. The first is to actually win the election and implement your policies. The second is to lose the election but, somehow, through power politics, political extortion, or appeal to aspects of the winners ideological predisposition that he may share with you, get the winner to do what you would have done had you won.

However it happened, does anyone doubt that, at least this week, the Republicans are controlling the terms of the debate in Washington and that it will be difficult to imagine how Democrats reassert control?

The "deal" means that we will continue to talk about what and how much to cut, which will benefit the richest among us, instead of what and where to invest, which would benefit the vast majority of us, especially those in need of gainful employment.

Not the finest day for America, as far as I can tell.

(Cross-posted at Lippmann's Ghost.)

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