What exactly was accomplished yesterday?

Hurrah, we have a debt deal!  But is there even any reason to cheer?  While we averted a government default, thus solving the immediate problem facing the country, does this bill really address - let alone help - the nation's economic problems?  In a nutshell, here is what the deal entails.  Provided it is passed by both houses of Congress, it consists of a two-step process that will cut $2.4 trillion from federal spending over the next decade, while authorizing an increase in the debt ceiling of a slightly smaller amount.  The first step includes a $900 billion increase in the debt ceiling ($400 billion immediately, and $500 billion in the fall) and $917 billion in spending cuts. In the second step, a bipartisan Congressional commission will recommend further deficit reduction steps totaling $1.5 trillion or more by the end of November, with Congress obligated to vote on the panel's proposals by the end of 2012. If the reductions recommended by the commission are passed, the president can then raise the debt ceiling by up to $1.5 trillion.  If Congress does not pass the commission's recommendations (or if the commission fails to agree on sufficiently large budget-cutting recommendations by the holidays), across-the-board budget cuts will be automatically triggered, split between defense and non-defense spending.  These automatic cuts will serve as the sword hanging over the heads of the committee members, encouraging them to actually agree on additional deficit reduction, rather than argue their way once again into gridlock. 

No one seems very thrilled with this plan, although world markets opened higher as relief swept throughout the financial world that the U.S. would not default.  But beyond solving the acute default emergency, does this plan really do much to help the United States' economy, especially unemployment?  That is by no means a sure thing, and many believe that steep cuts will affect both  The deal also doesn't really cut spending as much as it slows increases in spending.  The cuts reflect only about 5% of the amount the federal government is expected to spend over the next decade, making them about as effective as putting a Band-aid on a sliced jugular. And, since Social Security, Medicare, veterans' benefits and much military spending are likely to be protected from cuts, most of the reductions will come from the domestic discretionary portion of the budget. This is the portion that includes spending on infrastructure, education, research and other areas of the budget that are considered investment....which happen to be the very areas that create jobs and stimluate productivity.

A few groups come out winners with this so-called compromise plan.  Because the first step of the plan does not include any additional taxes or tax loophole closures,  the wealthy and corporations can be considered winners.  Along those same lines, the Tea Party and its far-right ilk scored a victory by preventing any of the aforementioned tax revenue increases. Of course, they won't consider themselves winners, as they're still pouting about not getting the balanced budget amendment they so wanted. Be very glad that they didn't.  In fact, I may have to devote an entire blog to what a craptastic idea a balanced budget amendment is.  But I digress.

Enough about who wins, because the vast majority of us don't.  Spending cuts in a depressed economy are likely to depress it even further, and conversely, increased government spending and investment in the economy is likely to spur economic growth (see above re: where the cuts will take place).  There is empirical evidence, available via Google, to bear this out, so I won't bore you with it here.  You might want to check out this http://www.nytimes.com/2011/08/01/us/politics/01econ.html?hp .   In addition to the Americans directly affected by the spending cuts  (and we don't know yet exactly where those cuts will be, although both Social Security and Medicare are exempt in the first round) even more will be affected if the economy plunges as a result.   Increased unemployment, reduced demand for goods, and deflation, are very real risks as the government is forced to invest less in the country's infrastructure

And whose brilliant idea was it to kick the can down the road and put the pressure on a yet-to-be-named commission of lawmakers to decide on additional deficit reduction?   I thought that was what the Gang of Six was for, and we all know what they accomplished.  Here's what's likely to happen when this commission begins to meet: the right will pressure the Republicans on the committee to continue to dig in their heels on tax increases - and elimination of tax cuts and credits - and the left will pressure the Democrats to dig in their heels on entitlement cuts, giving us the same result we just had.  I hate to be a pessimist, but the old adage "if you do what you've always done, you'll get what you've always gotten" seems to fit in this situation.  A commission that includes "fresh eyes", i.e. economists and business people, might be able to put a new perspective on the situation, but I'm afraid that come November, politics-as-usual will put the government right back into stalemate.

P.S. Since I started drafting this, the passage of the bill has come into question.  If the compromise bill fails in the House later today, I'll be writing a new blog tomorrow.  And it won't be a happy one...

Comments

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The Bullock Pulpit: Calculated musings of a pragmatic idealist: What exactly was accomplished yesterday?

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The Bullock Pulpit: Calculated musings of a pragmatic idealist: What exactly was accomplished yesterday?

[whichever]

The Bullock Pulpit: Calculated musings of a pragmatic idealist: What exactly was accomplished yesterday?

[elisa]

And of course they (you know who they is) will blame us (yeah us) for the fact that this depresses the economy - so you know, I know who could be the winner on this - and it won't be us....

Hopefully, real life, shifts enough in coming months to level this out, rather than cause any massive negative blip - hope springs eternal...

*head in the clouds*

[Really]

"No one seems very thrilled with this plan, although world markets opened higher as relief swept throughout the financial world that the U.S. would not default."

That'll teach me to give someone the benefit of the doubt.

[Eric Hild]

Good one. And these are sad days. America had a choice of what kind of country it wanted to be. It didn't choose wisely.