President Barack Obama speaks at the Police Academy in Denver yesterday.
Job creation slowed to just 88,000 in March, signaling a sluggish economy. And President Obama, with unerring timing, picked this moment to put out an authorized leak that he is willing to put Social Security and Medicare on the block as part of a grand budget bargain that will only slow the economy further.
The deterioration in economic performance was all too predictable, given the combined lead weights of the March 1 $85 billion of budget cuts in the sequester and the January deal to raise payroll taxes by about $120 billion. (The tax hike on working people was almost double the much-hyped tax increase on the top one percent, which totaled a little over $60 billion.)
Taken together, these twin deflationary deals cut the deficit by around $270 billion dollars this year. That’s close to two percent of GDP. And according to the Congressional Budget Office, this combined contractionary pressure will cut the 2013 year’s growth rate in half. So the slowdown in job creation is just what you’d expect.
The grand bargain that, for the moment, is mercifully eluding President Obama and the Republicans, would apply the same sort of medicine for nine more years, and with the same results—a prolonged slowdown growth and jobs. Obama and the Republicans are talking of a decade of cuts in the 3 to 4 trillion-dollar range.
Has everyone lost their minds? No, but the entire elite has been influenced by the economic myths of the Robert Rubin-Pete Peterson-Fix the Debt propagandists.
You can understand Republicans wanting to crush government and hoping to slow the recovery in a way that harms the Democrat in the 2014 midterm elections. But what is the president thinking?
Listen to a “senior economic official,” as quoted in today’s New York Times’s authoritative story revealing that the administration will offer to cut Social Security (by the backdoor method of reducing the cost of living adjustment via the “chained” Consumer Price Index) and Medicare if the Republicans will reciprocate with tax increases. “[T]he things like C.P.I. that Republican leaders have pushed hard for will only be accepted if Congressional Republicans are willing to do more on revenues.”
According to the Times story, the president has decided to pick up where he left off with Speaker John Boehner and put the final deal on the table, opening with big cuts in the two most popular programs that voters count on Democrats to defend. Reporter Jackie Calmes tells us, “In a significant shift in fiscal strategy, Mr. Obama on Wednesday will send a budget plan to Capitol Hill that departs from the usual presidential wish list that Republicans typically declare dead on arrival. Instead it will embody the final compromise offer that he made to Speaker John A. Boehner late last year.”
What could possibly go wrong with this bold, new strategy? (Actually the same strategy that has failed Obama since January 2009). Just about everything.
First, even if works, the ten-year grand bargain that results will condemn the economy to a decade of low level depression.
Second, the Republicans have a well-established history of taking the White House final offer as the starting point. As any smart negotiator knows, you don’t offer your final position in the opening bid.
Last, the strategy gives away the Democrats’ crown jewels—their defense of Social Security and Medicare, which should not be part of a budget deal in the first place. Now voters can conclude that they can’t trust either party.
Is their any silver lining? Maybe House Speaker Boehner, once again, will save the president from himself by failing to deliver enough Republicans for a tax increase. Maybe outraged rank and file Democrats in the House and Senate will get energized and refuse to support Obama’s proposed deal. And maybe the slowing of the economy, after this year’s down-payment on a grand budget bargain, will get Obama’s attention.
How much evidence do we need that neither austerity nor appeasement is smart strategy?